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AAA_ Actuarial Update_ 198909

VIEWS: 7 PAGES: 16

									; etlc~,uarial Upda~ ,e
VOLUME 18 NUMBER 9                       AMERICAN ACADEMY OF ACTUARIES                              SEPTEMBER 1989



                                     Environmental Risk Forum Draws
                                     Multi-Media Coverage
ME"
  2     From the President

  2     CLRS Announcement

  3     Letters to the Editor

        Fundamental Concepts
  3     ofActuarial Science
        Monograph Released
        CDC Says Estimate of HIV
  rJ    Infections May Be Lower

        Meet Academy Director of
  6     Government Information,
        Gary Hendricks               by George Soules

  a Social Security : A Briefing     The disclosure that insurers In this          costs could only be borne by higher
    Notebook                         country would not be able to fully cover      insurance premiums or Increased taxes .
                                     the property-loss claims In the event of        Fifty percent of the actuaries said
  8 Standards Outlook                a major earthquake brought the news           that chemical wastes will be the num-
                                     media out in force to a forum on envi-        ber one health hazard in the year 2000,
        Corrected Compliance
                                     ronmental risk, July 11, In Toronto.          and a majority agreed that these haz-
        Guideline
                                     Canada, where results of a survey of          ardous wastes will be society's most
        Modified Endowment           actuaries were released . The limited         costly environmental risk overall. In
        Contracts: Form 1099
  9     Timing Issues
                                     ability of insurers to bear the financial     effect, federal, provincial, and state
                                     brunt of a full-blown natural disaster        governments will have to bear the cost
                                     (the notion that some risks are unin-         of much of the cleanup, respondents
 10     Checklist of Academy
        Statements-July              surable), known by actuaries for some         said . They noted that, thus far, "Super-
                                     time, was considered a top news story         fund," the federally regulated cleanup
        Effective Casualty Loss      by the U .S . press . Canadian press fo-      effort in the United States, Is doing an
 10     Reserve Opinions             cused on another topic addressed in the       inadequate job . According to 64%,
                                     forum: insurance coverage problems            additional taxes will be necessary to
 1, 0   Centennial Portrait          related to nuclearand toxic waste cleanup .   cover the costs of such cleanups .
                                       The forum was part of Forecast 2000,          Finally, the courts' typically broad
        Summary of the NAIC          a year-long program designed to high-         interpretations of what insurance con-
 1, 1   Actuarial Guidelines
                                     light actuaries' role in solving the press-   tracts cover were blamed by 64% of re-
                                     ing social and business problems of the       spondents for the insurance Industry's
                                     day.                                          general reluctance to provide pollution
 Enclosures                             Leading off the forum was Robert           coverage .
                                     Brown, associate professor of statistics        Brown said that "ifpublie policyrnakers
 Included in this month's issue of
                                     and actuarial science at the University       and private industry relied more heav-
 The Update are the following:
                                     of Waterloo and president-elect of the        ily on the actuarial profession, they
 • Government Relations Watch
                                     Canadian Institute of Actuaries . He          could better prepare for the costs asso-
 •In Search Of . . .                 disclosed the results of the survey of        ciated with environmental risks ." He
 • ASB Boxscore                      U.S. and Canadian casualty actuaries .        also said that "as the actuarial profes-
 • Final Standards for Reinsurance      Out of 332 respondents, 81% said           sion enters its second century, we will
   Transactions and for GAAP         that, given current premiums and cov-         become increasingly involved in assess-
   Financial Statements              erage , insurers would not be able to         ing the costs of these risks."
 • Actuarial Guideline for FAS 88    cover the cost of claims in the event of a      Joining Brown on the panel were
                                     catastrophic natural disaster such as         Martin Theriault , national coordinator,
 • SOA Fall Seminar Schedule
                                     an earthquake. According to 50%, those                           (continued on page 4)
2                                                                                                                  The Actuarial Update

                                                                                                         are formulated by our volunteer com-
    American Academy                                                                                     mittees . Testimony at hearings, and
                                                                                                         other meetings with regulators, legisla-
    ofActuaries                                                                                          tors, and their staff generally involve
                                                                                                         our committee chairs and membe
    President                                                                                              If we are to be effective with
    W. James MacGinnitie                                                                                 limited resources, we must have the in-
    President-Elect                                                                                      volvement of all of our members . You
    Harold J. Brownlee                                                                                   should be alert to opportunities for
                                                                                                         contributing the actuarial perspective
    Vice Presidents
    Phillip N . I3en-Zvi                                                                                 to public policy debates, and bring such
    Committees Under the Supervision of the                                                              opportunities to the attention of our
    Vice President-Casualty                                                                              committees and staff. Your sources
    Harper L . Garrett, Jr.                                9,000-Plus Points of Light                    include your contacts with regulators
    Committees Under the Supervision of the                                                              and legislators, and the monitoring of
    Vice President-Health                                  Tomorrow's newspapers will contain a
                                                                                                         litigation where an amtcus curiae brief
    John H . Harding                                       story on a topic that has an actuarial
                                                                                                         from the profession would be helpful .
    Committees Under the Supervision of the                aspect . That's a prediction that can be
    Vice President-Life
                                                                                                         You also have contacts within other
                                                           safely made, given the fact that today's
    Joseph J. Stahl II                                                                                   professions-law, accounting, risk man-
                                                           and yesterday's, and the daybefore's all
    Committees Under the Supervision of the                                                              agement . economics-areas where ac-
                                                           did, back as far as one can remember.
    Vice President-Pensions                                                                              tuarial expertise may be helpful . And,
                                                           It might be about health care cost, or
    Secretary                                                                                            of course, you have contact with em-
                                                           toxic wastes, or AIDS, or Social Secu-
    Virgil D . Wagner                                                                                    ployers and clients, be they govern-
                                                           rity, or California's Proposition 103 . It
    Treasurer                                                                                            mental bodies, insurers, or plan spon-
                                                           might be about a topic that is less
    Daniel J. McCarthy                                                                                   sors . All of these contacts are potential
                                                           obviously actuarial, such as borrowing
    Executive Vice President                                                                             sources of Information on new or emerg-
                                                           short and lending long, while insuring
    James J . Murphy                                                                                     ing public policy issues that would
                                                           without risk assessment-otherwise
    Executive Office                                                                                     benefit from actuarial analysis and
                                                           known as the savings and loan crisis .
     17201 Street, N .W. 7th Floor                                                                       input.
                                                           But its a near certainty that there will
    Washington, D.C . 20006                                                                                Whereas our number and our re-
                                                           be such a story more often than not,
    (202) 223-8196                                                                                       sources may be limited, our perspec-
    FAX (202) 872-1948                                     reporting an outcome that would have
                                                                                                         tive Is unique, and the public will be
    Membership Administration                              been better had there been some actu-
                                                                                                         well served if the actuarial perspective
    Woodfield Corporate Center                             arial input .
                                                                                                         can be effectively brought to bear
    475 N . Martingale Road                                   Most of us are inclined to read such
                                                            stories, comment negatively to ourselves     key issues . An important part of
    Schaumburg, Illinois 60173-2226
    (312) 706-3513                                                                                       process is the early Identification of
                                                           or to our colleagues, and go on about
                                                           our business . But if we are truly to be      such issues, and that is where you, the
                                                                                                         membership, can make a major differ-
                                                           a public profession, it behooves us to
                                                           try to change the outcome of the next         ence. A
                                                           story for the better. To do so is not easy,
                                                           particularly where our advice is not
    Chairperson                                            sought nor welcome . It requires re-            Casualty Loss Reserve
    Committee on Publications                              sources, and it requires early Identifica-      Seminar
    Carl R . Ohman                                         tion of issues.
    Editor                                                    While the profession's resources for         The 1989 Casualty Loss Reserve
    Charles Barry H . Watson                               public interface involvement are lim-           Seminar (CLRS) will be held at the
    Executive Editor                                       ited, they are growing . The Academy            Hyatt Regency O'Hare Hotel, Chi-
Erich Parker                                               has just filled a newly-created position        cago, Illinois, September 18-19 .
Associate Editor                                           of director of government information           Cosponsored by the American
Warren P. Cooper                                           with an individual experienced in fed-          Academy of Actuaries and the
Managing Editor                                            eral regulatory and legislative matters .       Casualty Actuarial Society, the
Jeanne Casey                                               He and other staff members will also            CLRS provides a forum for the
Contributing Editor                                        increase their activity at the state level,     presentation and discussion of
George Soules                                              where many actuarial Issues are fo-             significant Issues affecting loss re-
Production Manager                                         cused, particularly those affecting in-         serving. This year's meeting will
Renee Cox                                                  surance companies . The Academy has             feature a welcoming address by
                                                           launched Contingencies, which is aimed          Richard Rogers, deputy director of
                                                           at both actuaries and public-policy             the Illinois Department of Insur-
                                                           decisionmakers. Other public relations          ance. The luncheon speaker is John
American Academy of Actuaries
                                                           and publicity efforts have been ex-             J . Byrne, chairman, Fireman's
1720 I Street, N .W. 7th Floor
                                                           panded, and together with the other             Fund Corp . The registration fee is
Washington, D .C . 20006
                                                           actuarial organizations we have initi-          $450 (plus $50 after September
Statements of fact and opinion in this publication,
including editorials and letters to the editor. are made   ated a series of public policy forums.          12) . For Information, contact
on the responsibility of the authors alone and do not        The Academy's public Interface ac-            Mlldred Prio leau, AAA, 1720 I St.,
necessarily Imply or represent the position of the
American Academy of Actuaries, the editors, or the         tivities depend primarily on the work of        N.W . Washington, DC 20006 . (202)
member; of the Academy.                                    our membership, however. Issues are             223-8196.
                                                           identified and discussed, and positions
 September 1989                                                                                                                   3

                                              Report shows projected SMI costs for          In it, he reported that the Old-Age
 Letters to the Editor                        only three years and has the audacity       and Survivors Insurance Trust Fund
                                              to state that SMI is actuarially sound .    had accumulated to $102 .9 billion at
                                                These are some real problems that         year's end . A "trust fund" implies either
   vited Comment                              the actuarial profession could and          cash in hand or else prudent invest-
Mh OASDI Debate                               should be worrying about, instead of        ments that give confidence . How can
                                              the relatively minorquestion ofwhether      the words "trust fund" be used when
 In the July 1989 issue of The Actuarial      the OASDI program (which will account       most of such moneys are spent by the
 Update, seven actuaries debated sev-         for only about 50% to 60% of the total      Treasury? All the "Trustees" have is an
 eral Social Security topics. One of the      future cost of the combined OASDI, HI,      I.O.U. from our government to be paid
 topics was whether it should be cause        and SMI programs) is within 5 .0% or        back in taxes byour children and grand-
 for concern that average Income for the      5 .1% of being In actuarial balance .       children, when and if they can afford it .
 next seventy-five years under the OASDI
 program (13 .02% of taxable payroll) is                                                                           Carl J . Strunk
                                                             A. Haeworth Robertson
 projected to fall short of average expen-
                                                                  Washington, D .C .                       Overland Park, Kansas
 ditures ( 13.72 %) according to the 1989
 Trustees Reports . This relative 5 .1%
 shortfall is siightlymore than the -close    "Trust Fund " a Misnomer                    Editor's Response: I tend to agree with
 actuarial balance" standard of 5 .0x6                                                    you, but I think that your complaint
                                              I believe thatAcademy members should        would better be directed to the Social
 that was used in prior years but awk-
                                              strive to call things by their proper       Security Administration. Harry Ballan-
 wardly eliminated in 1989.                   names and not confuse the issues . In
   Admittedly it is patent transgression                                                  tyne, afterall, did not himself coin the
                                              your June 1989 Update, there was an
 to eliminate a standard at the very mo-                                                  Social Security Administration's par-
                                              article by Harry Ballantyne, "The 1989
 ment it is no longer met . But all this                                                  lance of "trust fund" and "trustees ."
                                              Social Security Trustees Reports ."
 hullabaloo diverts our attention from a
 larger, more threatening problem .
   Social Security taxes finance both
 the OASDI and the HI programs . For
 these combined programs, under the           Fundamental Concepts of Actuarial
 alternative I1-B assumptions the aver-
 age income will be 15 .98% of taxable        Science Monograph Released
 payroll and the average expenditures
~be 19 .06% . a shortfall of 16% of                                                       the economics of risk, the study of
                                              by Curtis E . Huntington
     ndltures . Under the alternative III                                                 random variables, the time value of
    umptions , projected income will av-      In 1987 , the Interim Actuarial Stan-       money, the use of a generalized mathe-
                                              dards Board recognized the need to          matical model (both for individual and
erage 16 .13% , expenditures will aver-
                                              Identify the common Ideas underlying        collective arrangements), classification
age 26 .01%, and the shortfall will be
                                              all areas ofactuarial practice . Although   (including selection and antiselection),
38% .                                                                                     and the use of assumptions .
  We should keep In mind that the 38%         each segment of the actuarial profes-
                                              sion In North America has Its own             The premise of the final chapter is
shortfall under the alternative III as-                                                   that actuarial standards must be based
sumptions Is an average over the next         practice issues, for any actuarial stan-
                                              dard to be effective, it must be sup-       upon, and, in fact rest upon, a founda-
seventy-fiveyears. Over the firsttwenty-                                                  tion of fundamental actuarial concepts.
                                              ported by actuaries working in all areas
five years of this period, the shortfall is                                               Actuarial principles are seen as lying
                                              of specialization .
only 5% . Over the second twenty-five-                                                    between standards and foundations .
                                                With funding from an anonymous
year period (when the baby boomers                                                        The author, using a building construc-
                                              donor, the Actuarial Education and
will be retiring) the shortfall is 45%.                                                   tion analogy, likens principles to the
                                              Research Fund (AERF) undertook the
Over the third twenty-five-year period                                                    walls and floors of a building, which
                                              development of a monograph that es-
(when the children of the baby boomers                                                    rest on the foundations, but support
                                              tablishes the intellectual foundations,     the more specialized portions of the
will be retiring) the shortfall will be
57%. Now these shortfalls are some-           as a necessary preliminary step in the      structure-professional standards .
                                              development of standards for our pro-         The centennial edition of the mono-
thing to worry about, especially for
                                              fession . The AERF was formed in 1976       graph was released to attendees at the
taxpayers who are under age 50 .
                                              to "advance the knowledge of actuarial      June 12- 14 centennial celebration in
  Another serious problem that we
                                              science and respond to the needs of the     Washington, DC . A revised edition,
should be concerned about, not even           public for education and research in
mentioned in the debate , is the Supple-                                                  which includes an updated bibliogra-
                                              actuarial science."                         phy and corrects the few printing errors
mentary Medical Insurance (SMI) part
                                                The monograph, seventy- nine pages        found in the first edition, was sent to all
of the program that is financed by            in length ( including bibliography), is     members of the American Academy of
participant contributions and general         presented in nine chapters . Authored       Actuaries and the Canadian Institute of
revenue. The current cost of SMI is           by Charles L. Trowbridge . the mono-        Actuaries . (Academy members will
equivalent to about 2% of taxable pay-        graph identifies and delineates the         receive the monograph with their Sep-
roll, and Is (unofficially) projected to      fundamental intellectual concepts upon      tember /October issue of Contingencies .)
         the middle of the next century,      which actuarial science is based, or-         Additional copies of the monograph
    Z f payroll under the alternative         ganizing them into a cohesive whole .       are available upon request from AERF,
  - assumptions and 9% under the al-          An introduction and seven chapters          475 N . Martingale Rd., Suite 800,
ternative III assumptions (excluding the      each present an idea or a cluster of        Schaumburg . Illinois 60173-2226 .
effects of the new catastrophic health        related ideas that are fundamental to       Please include a donation to the AERF
insurance program) . Yet the Trustees         actuarial science . These ideas include     with your request . A
4                                                                                                     The Actuarial Update

ENVIRONMENTAL RISK FORUM                     tection Agency. There are two ways to          He said he believed "actuaries have a
(continued from page 1)                      minimize hazardous wastes, was Mi-             unique set of qualifications that allow
                                             chael Tiller's response, "one in the front     them to take part in this process in a very
Canadian Environmental Network ;
                                             end of the process and the other in the        legitimate fashion."
Margaret Tiller, president and actuary,                                                       A follow-up question concern
                                             pipe ." He said that U .S . efforts have
Tiller Consulting Group, Inc ; and Mi-                                                     whether there is sufficient knowl
                                             focused on eliminating waste before it
chael Tiller, environmental risk con-                                                      to set pollution insurance premiums
                                             gets into the pipe, pointing out that
sultant and principal, Tiller Consulting                                                   was also answered by Brown , who said
                                             there maybe too much emphasis placed
Group. Gus Carlson, business editor of                                                      that this is currently accomplished
The Toronto Sun acted as moderator.          on the regulatory solution to cleanup in
                                             the United States .                            through mathematical modelling . Yet
  Focusing on the exposure, costs,                                                         because of the many "parameters" in
                                               In contrast, so far there has been
prevention, and reduction of environ-                                                      the process there is no continuum for
                                             little incentive for companies in Can-
mental risk, Margaret Tiller empha-                                                        pollution insurance at present . The
                                             ada to minimize their hazardous wastes,
sized that "environmental risks are eve-                                                   parameters include litigation decisions
                                             according to Robert Brown . However,
rywhere. We are a part of the ecological                                                   and adjudications . and "the courts have
                                             he believes that more responsibility will
community and are constantly inter-                                                        taken policies that were designed with
                                             soon be placed on them . "There will be
acting with it by our very presence .                                                      the assistance of actuaries to have very
                                             a strong incentive to bring in strong
Every decision we make affects the en-                                                     specific coverage meanings" and "have
                                             risk management programs, which will
vironment in someway." Determining                                                          changed those meanings retrospectively
the nature of the exposure is the first      include waste minimization," he said .
                                                                                           and retroactively."
step and includes an analysis of "what                                                        John Geddes from The Financial Post
can be harmed, any conditions or situ-
ations that can cause or increase the
                                                 "Cost of pollution                        asked about the role of government in
                                                                                           backing the insurer at a time "when
change of harm (hazards), and any               cleanup hits home"                         there is not a clear market for insur-
active cause of loss (perils) ."                                                           ance for a lot of types of pollution
  She noted that the "ultimate preven-
                                                           -The Globe and Mail
                                                                                           production ." Brown stated that, given
tion of environmental risk is avoid-                                                       the response generated by the actuarial
ance," exemplified by an individual's             'Waste tops future                       risk survey, the government, as a result
decision to stop smoking. If this were to                     risk"                        of the insurers Inability to cover losses
occur on a universal scale, the tobacco
                                                              -The Toronto Sun             in the event of a major natural catastro-
and cigarette companies would endure                                                       phe, is "the ultimate reinsurer."
an immediate hardship, but "compa-
nies are amazingly resourceful at sur-        "Hike in premiums or                            Margaret Tiller was asked if she l
                                                                                           seen any change in industrial corn
viving, and people are similarly re-            increased taxes to                         nies' attitudes , In terms of assuming
sourceful at findingwork," she reflected .
In any case , managing our environ-            compensate future                           greater responsibility for environmental
                                                                                           cleanup . She replied that "there is very
mental risk "ratherthan letting it manage        disaster victims"                         slow change" and, as a practical mat-
us," Is critical to our survival as a spe-
                                                           -Los Angeles Herald             ter, industry has been preoccupied with
cies and to our quality of life, she con-
                                                                     Examiner              cleaning up the many pollution prob-
cluded.                                                                                    lems that occurred some time ago .
   Michael Tiller emphasized that "we                                                         Michael Tiller gave the example of the
are confused on a grand scale , between      In consultation with actuaries, "we will      Stringfellow site in California, which
environmental problems and solutions .       see premiums that will vary depending         had been opened to store liquid toxic
Our environmental problems are not           on the risk management program that           waste in the desert area east of Los
hazardous dump sites, polluted air,          the site has in place ." Brown contin-        Angeles . When the storage facility had
water, and dying fish . These problems       ued : "Actuaries will have input into the     started leaking, the government did go
are in reality symptoms--symptoms due        risk management program, including            after private disposers to clean it up.
in part to an anemic, impoverished           experience rating based on an ability to      The mandated cleanup has been going
concept ofethical community and lousy        minimize thosewastes and control those        on for about five years . He said that in
energy policy." He recommended shift-        wastes legitimately ."                        the United States at least, "some of the
ing the billions ofdollars currently spent     A reporter for The Globe and Mail,          costs are being shifted to the owners of,
on Superfund cleanup and related liti-       asked what "hard information" actuaries       or the real sources of, some of these
gation into energy research and train-       possessed In order to make the type of        problems."
ing a cadre of people who could address      pronouncements found in the risk sur-           Does the individual have a responsi-
the underlying philosophical problems .      vey. Brown admitted that with regard to       bility similar to the insurers for envi-
  Aquestion-and-answer period lnvoly-        the survey questions, actuaries were          ronmental pollution and cleanup? Brown
ingmediarepresentatives from the United      "forced to think through various scenar-      stated that "we do need a complete
States and Canada, including televi-         ios without a lot of hard information,"       change in societal attitudes," and that
sion reporters, followed the panelists'      and that this required some imagina-          the individual should be involved in
presentations .                              tion. However, he said "we have the           that movement . 'The most impo
  A spokesperson from Probe Past, a          ability to model some of these probabil-      part," he noted . "is to become a p
publication of Pollution Probe Founda-       istic distributions, so that we don't have    the mosaic that will change the wh
tion, asked whether Canada needs an          to have a history of earthquakes to be        direction, and in that process industry
office of waste minimization similar to      able to model a process that will allow us    will also set a new focus In waste
the United States' Environmental Pro-        to do an evaluation of the expected costs .   management and waste minimization." A
September 1989                                                                                                                   5

CDC Says Estimate of HIV Infections May Be Lower
by Dana H. Murphy

     apparent divergence of two new         ments and other federal agencies, in          mental characteristics :
estimates, respectively, on AIDS and        thirty-nine major metropolitan areas,
HIV prevalence, from the General Ac-        for estimating the prevalence of HIV            *Backward estimating procedures are
counting Office (GAO) and from the          infection by significant variables such         used to define initial model condi-
statistical branch of the Centers for       as demographic and behavioral sub-              tions, I .e., infective and susceptible
Disease Control (CDC), underscore the       group, and local geographic area. In            population sizes by risk group;
tremendous di ulculty in obtaining reli-    each area, surveys are being conducted,         •Simulation experiments are con-
able numbers on the incidence ofhuman       according to standardized protocols, in         ducted that estimate critical model
Immunodeficiencyvirus (HIV) infection       sexually-transmitted-disease clinics .          parameters, such as the number of
and acquired Immune deficiency syn-         drug-treatment centers, women's health          sexual and/or needle-sharing con-
drome (AIDS) .                              clinics, and tuberculosis clinics . In          tacts that explain AIDS cases and
  A new report from the GAO suggests        forty-four states and territories, addi-        deaths due to HIV-related Illnesses
that up to 30% more people will develop     tional studies are being done in child-         and AIDS ;
AIDS than previously has been pre-          bearing women, by testing blood                 *Estimated parameters are then fixed
dicted. Prior estimates of total AIDS       samples from newborns. Tests from
                                                                                            and used to make short-term projec-
cases by the end of 1991 had generally      the six states that have reported, to
                                                                                            tions of the Incidence of AIDS .
ranged between 195 .000 to 320 .000         date, on Infection in new mothers have
total AIDS cases : the new GAO estimate     shown awide range in percent ofwomen            With this model, Cooley estimates
is 300,000 to 485,000 .                     infected-from 0 .04% in Colorado to           that between 670,000 and 740,000
  Now Meade Morgan of the CDC's             0 .66% in New York.                           Americans are infected with HIV (not
statistical branch says that prior Pub-        Morgan pointed out that these kinds        including hemophiliacs) . Cooley
lic Health Service estimates of the         of clinic-derived data cannot be ex-          stressed that AIDS should not be char-
number of individuals infected with         trapolated to either the total U .S . popu-   acterized as a national epidemic, but
HIV are probably too high. The U.S.         lation, or even to the population of          rather as the series of "subepidemics"
Public Health Service had estimated         persons attending these clinics, since        at regional levels .
that 1 million to 1 .5 million people are   the metropolitan areas were not se-             In a discussion that followed the for-
  fected with HIV; however Morgan,          lected using probabilistic sampling, and      mal presentations, Michael Soto of the
    the basis of several new studies,       because of the presence of selection          National Research Council noted that,
   is total incidence at 750,000 to 1 .25   biases that influence attendance at           In a recent report, the council esti-
million .                                   public health clinics. However, these         mated that about 1 million Americans
  Speaking at the American Statistical      data are important for comparing rates        are infected with HIV. Still, because of
Association (ASA) meeting in Washing-       of HIV infection in different demographic     the array of possible errors that enter
ton, D .C ., on August 7, Morgan noted      subgroups according to transmission           into these estimates, Soto acknowl-
that researchers are currently attempt-     category and geographic area .                edged that the true number of HIV-
ing to get firm numbers on people in-         The surveys of special groups include       infected individuals might range from
fected with HIV through several data        military recruits (2,000,000 since Oc-        500,000 to 2 million.
sources :                                   tober 1985), Job Corps applicants               And in speaking with The Update,
                                            (70,000 since October 1987), and des-         Meade Morgan stressed the uncertainty
  •Sentinel HIV surveys (which              ignated "sentinel 20 hospitals ."
  comprise data from the CDC, state                                                       of his own new estimate of HIV preva-
                                              James Massey of the National Center
  and local health departments, and                                                       lence . For example, he noted that a
                                            for Health Statistics described the           Washington Times report (August 8,
  others) ;                                 National Household Seroprevalence             1989), based on his presentation, over-
  *Surveys of special groups (such as       Survey--a study of 50,000 U .S. adults        emphasized the degree of certainty that
  blood donors to the Red Cross and         (ages 18 to 54), data from whom will be       can be attached to the newer estimate
  military inductees) ;                     used to derive a single national esti-        (750,000 to 1 .25 million) . "The official
                                            mate of HIV prevalence. However, this
  *The National Household Prevalence                                                      Public Health estimate of 1 to 1 .5 mil-
                                            study has already involved more than          lion hasn't changed," he said . It will
  Survey:
                                            its share of controversy, in part be-         remain at this level until we get some
  *Back extrapolation from incidence        cause itentails questions about people's      consultants together in a room to look
  data on AIDS ; and                        drug use and sexual habits . Massey           at the numbers carefully ." Morgan
  *Deterministic and computer-simu-         believes that this kind of information is     stated that while his work (among oth-
  lation models that mimic the spread       crucial ; so, if the controversy persists,    ers') indicates that the Public Health
  of the disease (these, however, are       he is uncertain as to whether It is           Service estimate is, in fact, too high,
  still on the drawing board) .             possible to conduct this sort ofnational      other research confirms its essential
                                            survey .                                      reliability . "As we published in the Mor-
     e CDC sentinel surveillance sys-         In addition, a stochastic model for         bidity and Mortality Weekly Report, 1
    has been in place throughout 1988       estimating AIDS prevalence was pre-           million remains as the lower bound ."
and 1989 . It Is a data-collecting net-     sented at the ABA meeting by Philip C .
work undertaken byCDC, In collabora-        Cooley of the Research Triangle Insti-        Dana Murphy is editor of Contingen-
tion with state and local health depart-    tute . This model has several funda-          cies.
6                                                                                                     The Actuarial Update

                                                                                           the public interest Is better served
Meet Academy Director of Government                                                        because the information was available .
Information , Gary Hendricks
                                                                                           UPDATE: What do you perceive to
Gary Hendricks recently joined the              to be sought out for one's wise counsel    the major obstacles to ensuring ac
Academy staff as director of govern-            because others know that you seek to       les' greater role in these debates?
ment information and chief economist .          inform, rather than merely to persuade .
Formerly chiefeconomist and director of           The Academy's stock in trade al-         HENDRICKS: I can think of three
the g(Jice of research and economic             ways has been to get information from      obstacles at the federal level . First, we
analysts. Pension and Welfare Benefits          its members to state and federal poll-     need to improve our ability to speak in
Administration, U.S. Department                                                                      ways that policymakers can
of Labor, Hendricks brings eight-                                                                     easily understand . Sometimes
een years ' research experience                                                                       this means making our state-
and nine years ' of hands-on pol-                                                                     ments longer and including
icy and legislative experience to                                                                     more data; sometimes itmeans
the Academy 's government infor-                                                                      making our statements
mation program. Most of his pol-                                                                      shorter. Sometimes we need
icy work has been in two areas :                                                                      to be more erudite; sometimes
privatepensfonsand taxation . He                                                                      more folksy. At all times, we
also has served as a consultant                                                                       need to carefully distinguish
on policy and legislative strate-                                                                     between fact and our profes-
gies related to Social Security.                                                                      sional biases . It Isn't that we
Hendricks holds B.A . and MA.                                                                         haven' t communicated well In
degrees in eccnomicsfromthe Unf-                                                                      the past; It's Just that we have-
uers ity of Michigan. Prior to work-                                                                  n't communicated well
fng for the Department of Labor,                                                                      enough .
Hendricks was senior research                                                                           A second obstacle may be
associate at the Urban Institute in                                                                   less an "obstacle" than a past
Washington, DC .                                                                                      omission . The actuarial com-
                                                                                                      munity has agreat deal ofdata
                                                                                                      that can be used to address
UPDATE : What do you consider                                                                         issues that are not really a
to be the main objectives of the                                                                      arial ones . We should try
Academy's government informa-                                                                         to identify non-actuarial is-
tion program?                                                                                         sues where our information
                                                                                                     would be useful and put forth
HENDRICKS , I could list many                                                                         the effort to present this infor-
objectives, but the really basic                                                                      mation . Such efforts will not
one is getting information from those           cymakers . The job of the government       only be appreciated by the policy com-
who have it to those who need it. That          information program is to make that        munity, they will heighten the commu-
Is . from our members to policyrnakers .        information even more useful and           nity's awareness of the actuarial pro-
                                                even more timely. Most important, we       fession as one that is willing to do
UPDATE: If that's the case, how would           want the right people to get it and        public service, even when there is noth-
you describe the Academy's role in              assimilate it .                            ing to be gained by the profession .
public- policy debates -both regulatory           Actuaries are too few in number to be      A third obstacle to a greater policy
and legislative?                                a political constituency . But as an in-   role for the actuarial profession is gain-
                                                formational constituency, actuaries        ing greater access to policymakers . We
HENDRICK13 : In theory, our role is             have the opportunity to become equally     want to have easy access to poll-
very simple ; in fact, it is very difficult .   influential.                               cymakers and open, honest communi-
We work hard to get the best Informa-             During my tenure in Washington,          cation with them . I think that this is a
tion that the profession has to the poli-       I've noticed that people often say that    realistic objective for our government
cymakers who need that information .            the choice between one policy and          information program. However, we also
That's the easy part . The difficult part       another Is merely a political decision .   have to realize that developing working
is establishing our credibility. In Wash-       What they sometimes don't realize is       relationships with agency people and
ington, all "bearers of gifts" are looked       that, with proper information, this        members of Congress is painstaking
upon suspiciously, which is not too             would not be true. New information         work. As an informational constitu-
surprising in a town where everyone's a         almost always narrows the range of         ency. the Academy can best serve the
lobbyist for something . To properly            options that reasonable people would       profession if we keep the need to be
represent the profession , I believe that       support. Thus , the policy debate be-      good public servants foremost in
the Academy must scrupulously avoid             comes more focused on the real advan-      minds . This is not an easy task.
being a lobbyist . It's good to win the         tages or disadvantages of particular       takes great self-discipline . It also takes
argument especially if you're on the            approaches.     Ideological differences    perseverance . In Washington, good
side of right and justice. It's better still    become less important and, ultimately,     deeds are not acknowledged quickly .
          AMERICAN ACADEMY OF ACTUARIES


          Government
~         Relations
          Watch
                                                                                            September 1989

  FEDERAL LEGISLATION                                 AGE DISCRIMINATION
 Congress recessed 8/4 & will reconvene 9/6 with      Sen. Metzenbaum (D-OH) introduced S . 54,
 budget reconciliation & 1990 appropriations as       prohibiting employers from requiring waivers of
 the main orders of business.                         rights under Age Discrimination in Employment
                                                      Act (ADEA) before they participate in early
 MANDATED HEALTH BENEFITS
                                                      retirement incentive programs . Rep . Hawkins
 Bills S . 768 & H .R . 1845 introduced by Sen .      (D-CA) introduced House companion (H .R .
 Kennedy (D-MA) & Rep . Waxman (D-CA) . S .768        1432). Proposal approved by House Labor-
 approved by Senate Labor & Human Resources           Management Subcommittee on 6/13 . Senate
 Cmte 7/12 . Provisions include small business        hearing held 3/ 16 . In reaction to recent Supreme
 subsidy & expansion of Medicaid . Senate Finance     Court decision (Betts case), Senator Heinz (R-Pa)
 Subcomte held hearing on 6/19 on universal           introduced bill to clarify that ADEA applies to
 access to health care . ACADEMY COMMITTEE            benefit plans .
 on Health ; CHAIR . Edward J . Wojcik.ACADEMY
 ACTION-Comments submitted 7/6 & 7/10.                DISABILITY DISCRIMINATION

0,ONG-TERM CARE                                       Senate Labor & Human Resources Cmte
                                                      unanimously reported out the Americans with
 Hearing held 5/25 by Rep . Stark (D-CA) on H .R .    Disabilities Act (H .R .2273 & 5 .933). Bill could be
 1325, to provide certification standards for long-   interpreted to affect all employee benefit plans
 term care products . Rep. Gradison (R-OH)            and the way insurers do business .
 introduced H .R. 1010, treating LTC insurance
                                                      PENSIONS/REVERSIONS OF EXCESS ASSETS
 contracts as health insurance contracts .
 ACADEMY COMMITTEE on Health ; CHAIR.                 Sen . Metzenbaum (D-OH) introduced 5 .685 on
 Edward J . Wojcik .                                  pension asset reversions 4/4, linking size of
 HEALTH & WELFARE BENEFIT PLANS                       reversion to the nature of the replacement plan .
                                                      Hearings held 4/11 . Companion bill (H .R.1661)
  House Ways & Means Cmte approved major              introduced in House & approved up by House
  changes to Section 89, in large part conforming     Education & Labor Cmte on 7/13 . House
  H .R . 1864 to provisions of Senate-passed          Education & Labor Cmte budget reconciliation
  legislation (S . 5) . Both bills include an         package would eliminate all reversions (effective
  affordability standard permitting up to 50% cost    for terminations after 7/12/89). ACADEMY
  sharing with employees, but House bill adds a       COMMITTEE on Pensions; CHAIR . Larry D .
  dollar limitation ($2000 for family coverage and    Zimpleman . ACADEMY ACTION - Statement
  $1000 for individual coverage) for those earning    submitted 5/3 .
  less than $20,000 annually . Both bills change
  current law's availability standard from 90% of     INSURANCE REGULATION/SOLVENCY
  non-highly compensated to 90% of all employees,     House Energy & Commerce Cmte Chairman
  & redefine part-time work as under 30 hours per     Dingell (D-MI) held hearings 4/5,11,19 on Transit
  week . The Ways & Means provisions were added       insolvency ; witnesses questioned the states'
  to its budget reconciliation package . ACADEMY      ability to regulate reinsurance . ACADEMY
  COMMITTEE on Health & Welfare Plans ; CHAIR .       COMMITTEE on Property & Liability Issues ;
-Jeffrey P . Petertil .                               CHAIR . Robert V . Deutsch . ACADEMY ACTION
                                                      - Met with congressional staff 3/14 .
INSURANCE REGULATION/McCARRAN                           RETIREE HEALTH BENEFITS
FERGUSON
                                                        Rep. Chandler (R-WA) introduced legislation
On 2/23 Rep . Florio (D-NJ) introduced Insurance        (H .R . 1865 & 1866) to allow pre-funding
Consumer Protection Act of 1989 (H .R .1093) that       retiree health & use of excess pension assets t
would amend the Risk Retention Act "to                  fund retiree health benefits . House Ways &
establish standards for the conduct of the              Means Subcmte held hearing on employer-
business of insurance in interstate commerce ."         sponsored retiree health insurance on 6/14 .
Senate Judiciary Committee held hearing on S .          Budget reconciliation bills of Senate Labor &
719 introduced by Sen. Metzenbaum on 4/18 . Bill        Human Resources , House Ways & Means & House
would repeal anti-trust exemption, but allow safe       Education & Labor Cmtes all provide for
harbors for certain joint activities . Rep . Brooks     transfers of excess pension assets to fund current
(D-TX) introduced H .R . 1663, similar to last          retiree health benefits . ACADEMY COMMITTEE
year's House Judiciary Cmte compromise .                on Health & Welfare Plans ; CHAIR . Jeffrey P .
ACADEMY COMMITTEE on Property & Liability               Petertil .
Issues ; CHAIR. Robert V . Deutsch . ACADEMY
ACTION - Statement submitted 5/8 . Revised              FEDERAL REGULATION
statement under development for anticipated             TREASURY/COBRA HEALTHCARE
hearings.
                                                        CONTINUATION PROVISIONS
PENSION/TECHNICAL CORRECTIONS
                                                        COBRA requires employers to offer continuation
On 6/29 House Ways & Means Cmte approved                of coverage under group health plans to former
pension technical corrections as part of budget         employees, divorced or widowed spouses, &
reconciliation . Reps . Clay (D-MO) & Roukema           dependent children . Treasury released "non-cost"
(R-NJ) introduced H .R .2794 to make pension-           proposed regs 6/15/87 (52 FR' 22716) ; IRS held
related changes to recent tax laws . Education &        public hearing 11/4/87 . ACADEMY COMMITTEE
Labor Cmte approved proposal 7/13 .                     on Health & Welfare Plans ; CHAIR . Jeffrey P .
                                                        Petertil . ACADEMY ACTION - Comments
PENSION/MISCELLANEOUS
                                                        submitted to IRS 1/6/87.
Senate Labor & Human Resources & House Labor
& Education Cmtes added filing fees for 5500s &
                                                        IRS/SECTION 89                                  0
termination exit fees to their budget                   Section 89 imposed new health & welfare plan
reconciliation bills. House Education & Labor           nondiscrimination rules based on benefit
also added a joint employer /employees trustee          valuation .   Proposed regs issued 3 / 7 include
requirement for all plans . House Ways & Means          transitional rules . ACADEMY SUBCOMMITTEE
budget reconciliation bill includes general repeal      on Benefit Values, CHAIR . Richard Ostuw .
of 50% interest exclusion for ESOP loans &              IRS/INTEGRATION RULES
deductions for dividends to reduce ESOP debt .
                                                        On 11/14, IRS issued proposed integration
LIFE INSURANCE TAXATION
                                                        regulations making changes to rules required by
Congress is scheduled to review the life                the Tax Reform Act of 1986 for qualified
insurance industry's taxes, with a focus on             pension, profit sharing, & stock bonus plans .
stock/mutual taxes . House Ways & Means Cmte            Regs would apply to plan years beginning after
budget reconciliation proposal includes revisions       12/31/88 . IRS Notice 88-131, released 12/13,
to the alternative minimum tax (AMT) .                  provides some relief to plan sponsors on changes
                                                        required by TRA86 . Additional guidance
SOCIAL SECURITY
                                                        provided in IRS Notice 89-70 issued 6/2 .
Joint Economic Cmte held hearing to examine             ACADEMY COMMITTEE on Pensions ; CHAIR .
economic & budgetary implications of Social             Larry D . Zimpleman . ACADEMY comments
Security trust funds build-up . ACADEMY                 submitted 1/17/89 . Cmte testifed at public
COMMITTEE on Social Insurance ; CHAIR . Robert          hearing on 6/29 .
J . Myers ; ACADEMY ACTION : Statement
submitted 3/28 to congressional leaders & agency
officials on 1988 Trustees' report .



                                                      -2-
  IRS/MINIMUM COVERAGE                                   • Health rate guidelines. L&HATF has exposed
                                                           new guidelines . Actuarial standard on health
  On 5/17, IRS issued proposed regs on minimum
                                                           rate filings adopted by ASB 1/12 . ACADEMY
   overage requirements of Section 410(b) . The
                                                           SUBCOMMITTEE on Liaison with NAIC (B)
14roposed regulations address whether group that
                                                           Committee ; CHAIR . E . Paul Barnhart .
  benefits under a qualified plan meets 410(b) mini
  mum. coverage requirements . Public hearing            • Universal life . NAIC exposed amendments to
  scheduled for 11 /20. ACADEMY COMMITTEE on               valuation/nonforfeiture provisions of model
  Pensions ; CHAIR . Larry D . Zimpleman .                 reg. ACADEMY COMMITTEE on Life
                                                           Insurance; CHAIR . John J. Palmer . ACADEMY
  IRS/MINIMUM PARTICIPATION RULES                          ACTION - Reports submitted 6/12/87, 9/28/87,
                                                           3/5/88 & 6/6/88 .
  On 2/13 IRS issued proposed regs explaining
                                                         • Non-forfeiture values . Academy appointed
  minimum participation requirements in Section
                                                           Task Force on Non-Forfeiture Values charged
  401(a)(26) affecting qualified pension, profit
                                                           with development of a suggested basis for
  sharing, & stock bonus plans. Public hearing
                                                           revised, modernized, non-forfeiture legislation .
  scheduled for 10/30. ACADEMY COMMITTEE on
                                                           CHAIR . Walter Miller .
  Pensions ; CHAIR. Larry D . Zimpleman .
                                                         • Yield index . NAIC adopted model reg on use
  ACADEMY ACTION- comments submitted 4/17.
                                                           of index . ACADEMY COMMITTEE on Life
  DOL/PARTICIPANT LOANS                                    Insurance ; CHAIR . John J . Palmer .
  DOL issued final 408(bx 1) participant loan              ACADEMY ACTION - Report submitted 6/1/88
  regulation. Final reg includes a market interest         and discussed 10/27 .
                                                         • Reinsurance reserves . NAIC appointed new
  rate requirement with no safe harbor .
                                                           working group to consider reinsurance issues .
  PBGC/PREMIUM PACKAGE                                     ASB adopted 7/89 standard on reinsurance
                                                           transactions for life companies .
  PBGC issued final 1989 single employer premium
  package with revised regulations. Certification        • CCRCs . NAIC Blanks (EX4) Task Force has
  by an EA of Form 1 is not required .                     appointed a new study group to develop a
                                                           standard reporting form for CCRCs. Academy
   LAIC ISSUES                                             assisting in effort . ACADEMY COMMITTEE
                                                           on CCRCs ; CHAIR . Alwyn V . Powell .
  Next meeting in Wilmington , DE 9/10-13 . NAIC         • CCRCs . NAIC Long-term Care (B) Subgroup
  Life & Health Actuarial Task Force ("L&HATF")            discussing possible model regulation for
  scheduled 10/5-6 in San Francisco. Items                 CCRCs . ACADEMY COMMITTEE on CCRCs ;
  involving Academy activity :                             CHAIR . Alwyn V . Powell .
                                                         • Securitization. Emerging Issues Study Group
  • Valuation actuary . Special Advisory
                                                           issued report ; L&HATF to develop guidelines .
    Committee on the Valuation Law submitted
    exposure draft . Adoption possible in
    December . JOINT COMMITTEE on the                    ACCOUNTING ISSUES
    Valuation Actuary ; CHAIR . Walter S . Rugland .     EMPLOYERS ACCOUNTING FOR OTHER
  • Actuarial guidelines . L&HATF has adopted            POST-EMPLOYMENT BENEFITS/FASB
    actuarial guidelines on structured settlements
                                                         FASB Exposure Draft on accounting for non-
    & substandard annuities and is also working on
                                                         pension retirement benefits released 2/14/89 .
    a revision to Guideline 4, called Guideline
                                                         Deadline for submitting comments 8/14/89 .
    XXX .ACADEMY COMMITTEE on Life
    Insurance ; CHAIR . John J . Palmer .                Public hearings scheduled 10/10-12 & 11/2-3/89 .
    ACADEMY ACTION - Comments submitted                  ACADEMY COMMITTEE on Health & Welfare
                                                         Plans ; CHAIR . Jeffrey P. Petertil ACADEMY
    5/30 .
                                                         ACTION - Will testify in Washington at 10/10
  • Health valuation standards. L&HAFT adopted
                                                         hearings. Written comments submitted 8/4.
    revised proposal . ACADEMY SUBCOMMITTEE
    on Liaison with NAIC (B) Committee ; CHAIR.          FINANCIAL INSTRUMENTS/FASB
    E. Paul Barnhart . ACADEMY ACTION -
                                                         FASB released Exposure Draft on disclosure
    Statements submitted 4/15/88 & 9/12 .
                                                         involving financial instruments 12/87 . Issuance
                                                         of a discussion document on recognition &

i                                                      -3-
measurement scheduled for 1990 ; discussion            • transfer of risk , foreign reinsurance, &
memorandum on liability & equity scheduled for           fronting ; statement of position on transfer of
1990. ACADEMY CMTES . on Financial                                                                      ,
                                                                                                        .
                                                         risk in reinsurance contracts & accounting fo r~
Reporting; CHAIRS . Ste hen P. Lowe (Casualty)           reinsurance     contracts being     redrafte
& Paul F. Kolkman (Life ACADEMY ACTION -                 ACADEMY         COMMITTEES on        Financia]'
Statement submitted 5/13/88.                             Reportin ;g    CHAIRS.    Stephen   P.   Lowe
                                                         ( Casualty ). & Paul F . Kolkman ( Life).
INSURANCE ACCOUNTING/FASB                                ACADEMY ACTION - Comments submitted
FAS 97, final standard on insurance accounting,          7/21/88.
released 12/ 87 . ASB developing proposed              • medical malpractice loss contingencies ;
standard on methods & assumptions for use in             Statement of Position 87-1 released 3/16/87 .
stock life insurance company financial                   ACADEMY COMMITTEE on Property &
reporting . ACADEMY COMMITTEE on Life                    Liability Financial Reporting ; CHAIR. Stephen
Insurance Financial Reporting ; CHAIR . Paul F .         P. Lowe . ACADEMY ACTION - Comments
Kolkman .                                                submitted 1016/88 .
INTEREST METHODS/FASB                                  • property and liability audit guide expected to
FASB appointed advisory group on time value of           be issued in mid - to late - 1989 .   Exposure
money .   Discussion will include loss reserves,         Draft released 7/87 . ACADEMY COMMITTEE
deferred taxes , etc . Discussion memorandum             on Property & Liability Financial Reporting .
scheduled for 1990 .                                     CHAIR . Stephen P . Lowe . ACADEMY
                                                         ACTION - Statement submitted 11/9/97 .
PENSION ACCOUNTING/GASB
                                                       • agents and brokers . Paper under development .
Project on accounting standards underway .
                                                       OTHER ACCOUNTING ISSUES
Preliminary views document released 10/27 .
Public hearings 3/15 & 17/89 . GASB to pursue          • AICPA Exposure Draft on accounting for
funding -oriented approach rather than FAS 87-           CCRCs      released   1/9/89 . ACADEMY
type approach .      Exposure draft expected 3rd         COMMITTEE on CCRCs ; CHAIR . Alwyn V .
quarter .   ACADEMY COMMITTEE on Pension                 Powell.    ACADEMY ACTION - Comments
Accounting ; CHAIR . Darrel J . Croat.                   submitted 5/31/89 .
ACADEMY ACTION - Statement submitted                   • AICPA released Exposure Draft on Audits
2/14/89 ; testified at 3115 public hearing .             Providers of Health Care Services on 3/15/88 .
                                                         Audit & accounting guide scheduled to be
EMPLOYERS ACCOUNTING FOR OTHER POST-                     issued 8 /89 . ACADEMY COMMITTEE on
EMPLOYMENT BENEFITS/GASB                                 Health; CHAIR . Edward J . Wojcik . ACADEMY
Research project initiated on accounting for post-       COMMITTEE on CCRCs ; CHAIR . Alwyn V .
employment benefits . ACADEMY COMMITTEE                  Powell. ACADEMY ACTION - Comments
on Health & Welfare Plans ; CHAIR . Jeffrey P .          submitted 5/10 & 7/5/88 .
Petertil .
                                                       FOR ADDITIONAL INFORMATION CONTACT :
INSURANCE ACCOUNTING/GASB                              Gary D . Simms , General Counsel
GASB conducting new project on risk                    Gary    Hendricks , Director of Government
management in reaction to liability insurance          Information
crisis . Standard is expected to be based on           (202) 223-8196
FAS 5 . Discussion memorandum issued 9/87 . On         Items in bold- faced       type indicate new
12/6 GASB released on Exposure Draft on
                                                       developments this month . Please order Academy
Accounting & Financial Reporting for Risk
                                                       statements by date of release .
Financing & Related Insurance           Issues .
COMMITTEE on Property & Liability Financial
Reporting ; CHAIR . Stephen P . Lowe .
AICPA INSURANCE COMPANIES COMMITTEE
AGENDA
Various projects at different stages of
development . Issues are :


                                                     -4-
 September 1989                                                                                                                    7

 UPDATE: How do you see yourself fa-
 cilitating this information exchange be-
                                              Social Security : A Briefing Notebook
 tween actuaries and state and federal        As background material for its forth-        mendation that the trust-fund balance
W mment?                                      coming statement on the long-term            be taken into account In judging the
                                              measures of actuarial soundness for          financial soundness of the system . The
 HENDRICKS : My job Is to keep track of       two Social Security programs--the Old-       paper provides illustrative results to
 the legislative and regulatory pulse- to     Age, Survivors, and Disability Insur-        show the effect on the actuarial balance
 stay in immediate contact with con-          ance (OASDI) and Hospital Insurance          and discusses the relative weight as-
 gressional and agency staffers who are       (HI) programs--the Academy has pre-          signed to the seventy-fifth year of the
 working on the bills and regulations         pared abriefing notebookthat discusses       projection as compared to the firstyear.
 that concern actuaries . I find out what     some of the issues involved . Divided        The paper also discusses modification
 information they need and then work          into five sections, the notebook con-        of the width of the tolerance band for
 with the appropriate Academy commit-         tains the Academy's prior statement on       assessing actuarial soundness. An
 tees to get it to them in the most useful    this topic and four new papers.              appendix to the paper provides simple
 form .                                         In January 1987, the Academy's Com-        mathematical developments of the items
   The important details of most laws         mittee on Social insurance issued a          the paper discusses .
 and regulations are decided by agency        report that included recommendations           The third section of the briefing note-
                                              for the measurement of the actuarial         book contains a paper by Richard S .
 and legislative staff. It's behind-the-
                                              status of the Social Security system .       Foster, Toni S . Hustead, and Steven V.
 scenes work, and it's important, for any
                                              That report concluded that the current       McKay, which discusses why the use of
 one who wants to influence the proc-
                                              approach used to measure the long-           a present-value concept (l .e ., discount-
 ess, to get to key staff people early on .   range actuarial balance of the OASDI         ing future cash flows for Interest) is
 That's really how I can best help . I        system Is inappropriate if the system Is     misleading for large social- insurance
 know many of these people and have           to be financed on a current-cost basis .     programs like OASDI. The paper
 sympathy for the difficulties and pres-      The committee also recommended the
 sures that confront them . Having                                                         strongly argues why OASDI must be
                                              establishment of an additional crite-
 worked on legislation myself, I know all                                                  considered as part of overall govern-
                                              rion for the fund ratio . Finally, the
 too well the frustration ofnot being able                                                 ment expenditures, and not merely as
                                              committee urged publication of sev-
 to get significant information in time for                                                an isolated program .
                                              enty-five-year cost projections for Sup-
 it to be useful.                             plemental Medical Insurance (SMI),             In the fourth section, a memo from
   If we are to help policy staff, we must    another Social Security program, and         Guy King, chief actuary for the Health
                                              the establishment of an independent          Care Financing Administration, pro-
 communicate with them and live up to
                                              board of actuaries to review the meth-       poses changes in the method of meas-
      commitments we make to them .                                                        uring the actuarial balance for the HI
    e Academy's executive vice presi-         odology of the actuarial estimates and
                                              the measures of actuarial status for the     system . The memo discusses why the
 dent, as the representative of the pro-                                                   level-financing method is inappropri-
                                              Social Security system . The commit-
 fession in Washington, must be able to                                                    ate for HI when it Is funded on a pay-as-
                                              tee's 1987 report constitutes the first
 make commitments that members of                                                          you-gobasis and recommends a change
                                              section of the briefing notebook .
 the Academy will stand behind. Mem-                                                       to a method more like the average-cost
                                                The second section of the notebook
 bers, in turn, must be willing to work                                                    method formerly used for OASDI . The
                                              contains an issue paper by Francisco
 with Capitol Hill and Executive Branch                                                    paper also provides illustrative tables
                                              R. Bayo, deputy chief actuary of the
 staff, even when the going is rough . In                                                  of how the method works for Old-Age,
                                              Social Security Administration. The
 the future, I think we're going to have to   paper gives a brief history of methods       Survivors Insurance (OASI) projections .
                                                                                             The final section of the briefing note-
 work much harder to understand the           used to measure the long-range stabil-
                                                                                           book is a historical chronology of the
 problems and perspectives of the regu-       ity of the DASD[ system and proposes a
                                                                                           funding basis for OASDI . This paper,
 lators . [ hope I can contribute to that     modification to the test of OASDI long-
                                                                                           written by Robert J . Myers, outlines the
 greater understanding .                      range actuarial balance. The proposed
                                                                                           historical estimates of the future fund
                                              modification would retain all current
                                                                                           ratios and year of exhaustion of the
                                              computations and presentations, with
 UPDATE: How will you know when the                                                        trust fund and shows how these esti-
                                              several exceptions . For example, it
 government information program is a                                                       mates have changed over the years .
                                              would:
 success?                                                                                  The paper also provides tables of the
                                                1 . Assign a reliability factor for each   historical fund ratios that show that
                                                year In the seventy-five-year projec-      OASDI was financed, as to its actual op-
 HENDRICKS: We want to be the                                                              erations, on a partial-reserve basis from
                                                tion ;
 people in town to whom everyone wants                                                     its inception through the early 1960s .
 to talk. To successfully contribute to         2. Base the actuarial balance on the       Thereafter, the actual financing has
 the sound development of policy, the           present value of projected income          been on a current-cost basis . However,
 Academy must get important informa-            and expenditures, expressed as a           under 1977 and subsequent legisla-
 tion to more policymakers in time for it       percent of projected taxable payroll :     tion, a mammoth fund is estimated to
 to be useful . When key decisionmakers         and                                        build up over the next several decades .
                                                3 . Include the trust-fund balance at      essentially returning OASDI to a par-
     sistently recognize issues that have
                                                                                           tial-reserve funding basis .
warlal aspects and begin to contact             the start of the valuation period as
 the Academy for guidance, we'll know           part of income .
                                                                                             Copies of the Social Security briefing
 that the government information pro-
                                              The proposed changes would satisfy           notebook are available from the Acad-
 gram Is a success .e
                                              the General Accounting Office's recom-       emy's Washington office.
8                                                                                                 The Actuarial Update

                                                                                       draws its members from both the casu-
    1 C Standards Outlook                                                              alty and life disciplines and also in-
    0            by Christine Nickerson                                                cludes members drawn from the in-
                                                                                       vestment banking community.
N
The Actuarial Standards Board (ASB)         Specialty Committee                        Pension Committee
held its third- quarter meeting in St .
Louis , July 13-14 , 1989 . At the meet-    The Specialty Committee presented a        The Pension Committee Is discussing
ing, the ASB approved two new stan-         proposed exposure draft on expert-         changing the provision for numeric
dards of practice titled, The Ttvatment     witness testimony by actuaries, at the     demonstrations contained In its expo-
of Reinsurance Transactions in Life In-     July ASB meeting. The proposed stan-       sure draft on shutdown benefits (re-
surance Company Financial. Statements       dard would guide actuaries in giving       leased in April 1989 ) and is also consid-
and Methods and Assumptions far Use         testimony as actuarial experts in pub-     ering expanding the proposal to en-
                                            lic forums, including administrative or    compass unpredictable contingent
in Stock Life Insurance Company F finan-
                                            legislative hearings and judicial or ex-   events . The committee Is currently
cial Statements Prepared in Accordance                                                 redrafting the document and expects
with GAAP. These two standards were         tra-judicial proceedings . The ASB re-
                                            viewed the proposal and agreed that It     that changes may be substantive
released as exposure drafts in January                                                 enough to require re-exposure .
1989 and are included in this mailing of    needs further work by the committee
                                            before it can be approved for release as
The Update.                                                                            Retiree Health Care
                                            an exposure draft.
  The ASB also approved, as an expo-
sure draft, the Casualty Committee's                                                   The Retiree Health Care Committee is
proposed standard of practice titled,       Health Committee                           analyzing the Financial Accounting
Trending Procedures in Property/Casu-                                                  Standards Board (FASB) exposure draft
                                            The Health Committee is beginningwork
alty Insurance Ratemaking. The pro-                                                    on retiree health benefits . The commit-
                                            on standards related to health mainte-
posed standard would provide actuar-                                                   tee has offered comments to the Acad-
                                            nance organizations (HMOs) and health
ies with a basis for assessing proce-                                                  emy's public Interface committee as
                                            ratemaking . With regard to HMOs, the
dures appropriate for adjusting histori-                                               that committee prepares its statement.
                                            committee plans to develop a standard
cal data to reflect the expected value of                                              and it will begin work on an actuarial
                                            that will point out issues and practice
future cost levels.                                                                    compliance guideline once the FASB
                                            areas unique to HMOs and Items that
  Projects currently under development                                                 standard becomes final .
                                            actuaries should consider when deal-
by ASB operating committees are as          ing with these issues.
follows :                                     In the area of health ratemaking, the    Task Force on Long-Ter#
                                            committee is reviewing the principles
                                            drafted by the Casualty Actuarial Soci-
                                                                                       Care
Casualty Committee
                                            ety for casualty ratemaking and also
                                                                                       The newly-formed "Task Force on Long-
                                            the recently-adopted standard fordocu-
The Casualty Committee is redrafting a                                                 Term Care" will be chaired by Bartley L.
                                            mentation and disclosure in casualty
proposed standard on loss reserve dis-                                                 Munson. Several task force members
                                            ratemaking and reserving . The com-        have been recruited and the task force
counting. The ASB reviewed the com-         mittee believes these principles may
mittee ' s work on this topic at the July                                              will hold its first meeting in September.
                                            also have some applicability for health    Issues relating to private long-term care
ASB meeting and asked the committee         ratemaking and will consider their use,    insurance are receiving regulatory at-
to consider revisions to a number of        with some modification, in a health        tention at both the state and federal
items, before the board approved its        ratemaking standard.                       levels, and this activity underlines the
release as an exposure draft. The pro-                                                 need for standards of practice in this
posed standard would define the issues      Life Committee                             area. A
and considerations that an actuary
must take into account when deter-          In addition to the two standards men-
mining discounted property or casu-         tioned above that were adopted at the         Corrected
                                            July ASB meeting, the committee Is
alty loss and / or loss adjustment ex-
                                            drafting a standard on when to do cash        Compliance
pense reserves.
  The committee is shifting direction
                                            flow testing. The committee plans to          Guideline
                                            have a draft on this topic ready to
somewhat in its development ofa stan-
                                            present to the ASB in October.                With this issue of The Actuarial
dard of practice for the valuation of
                                              The committee's Task Force on the           Update, you are receiving a cor-
insurance companies and now plans to        Financial Implications of AIDS has            rected copy of the Actuarial Stan-
focus more specifically on cash flow        begun work on a standard of practice          dards Board's Actuarial Compli-
testing for property and casualty in-       and plans to have a preliminary draft         ance Guideline for Statement of
surers.                                     ready by October.                             Financial Accounting Standard
  The committee is considering the need       The committee'sAppralsalTaskForce           No. 88. Please discard the earlie
to create a standard of practice on         has developed a charge and has agreed         version , which was mailed with
profit issues and Is also planning to       to the fundamentals of a standard of          July's Update, it contained sev-
begin work on a standard relating to        practice relating to an actuarial ap-         eral copy-editing errors .
reinsurance .                               praisal of an insurer . The task force
September 1989                                                                                                                    9

                                                                                         able income than It would if the policy
Modified Endowment Contracts :                                                           were eventually deemed to be a MEC .
Form 1099 Timing Issues                                                                  So, in virtually all cases, for a policy in
                                                                                         which premiums are eventually re-
Sdward L. Robbins                                                                        versed, the company would have per-
                                                                                         formed reasonable Form 1099 report-
As life insurance marketing people are       income . In July, 1990, interest com-       ing based on the non-MEC status for
 aware, the Technical and Miscellane-        pounds into new loan principal, and          1989 and might generate another "posi-
ous Revenue Act (TAMRA) passed by            thus an additional (possibly taxable in     tive," incremental Form 1099 for 1990,
Congress in 1988 adds a new section to       part) deemed distribution has taken         once the policy has become a MEC.
the Internal Revenue Code (Section           place .                                     Thus, if the policy becomes a MEC in
7702A) that, in effect, forces a segmen-        In August, 1990-still within the         1990, a Form 1099 would be sent for a
tation of life insurance policies into       sixty-day period of reversibility-the       positive incremental amount, report-
three types, for federal income tax          insured " sees the error of his ways" and   able as a 1990 event. If excess premi-
purposes : policies that do not qualify      wants to reverse MEC status by having       ums are returned with Interest in 1990,
as life Insurance contracts ; modified       the excess premiums returned to him         in most cases , the 1990 Form 1099
endowment contracts (MEC), which             with Interest . Taxable income for the      would also be for a positive incremental
qualify as life insurance contracts but      prior year should now be somehow            amount (including interest on the re-
                                             reversed , most likely by amending the      turned excess premiums) .
are subject to certain onerous distribu-
                                              1989 tax return .
tion rules ; and contracts that qualify as                                                  Thus, If a reasonable interpretation
                                                Additionally, investment in the con-
life insurance contracts but avoid the                                                   could result in income reporting of po-
                                             tract (basis) must be recalculated, since
modified endowment contract "taint ."                                                    tentially taxable events being expressed
                                             on a MEC the taxable income on the
One particular problem that all compa-                                                   In successive "positive" layers-i.e ., pos-
                                             loan distribution is deemed to increase
nies will have to face is the question,                                                  sible additional taxes assessable at later
                                             basis, and this must now be unwound .
'When does a policy become a MEC?"                                                       dates, rather than both "positive" and
                                             Also, investment in the contract must
   A contract generally becomes a MEC                                                    "negative" layers-we could avoid the
                                             be reduced for the amount of premium
through either one of two events: pay-                                                   problem of initial 1099 reporting and
ment of cumulative premiums in ex-           returned . Further , let us assume for
                                                                                         subsequent amended returns .
cess of a stipulated seven-pay limit ; or    the moment that the loaned amount
                                                                                         Amended returns are disruptive and
reduction of benefits, such that the         was in excess of the amount that would
                                                                                         can be expensive. Some people will tell
#n-pay limit is less than the cumu-          have been eligible to be loaned if no
                                                                                         you that amended returns also are likely
    ve premiums paid.                        excess premiums had been paid . That
                                                                                         to trigger audits.
   Each of these two events is reversible    excess loan amount must now be re-
                                                                                           The basic problem is that it is very
by the policyholder, but the time limits     cast as a prior return of excess pre-
                                                                                         difficult on a reading of the Internal
for reversing the contract differ . Excess   mium (plus interest) before calculation
                                                                                         Revenue Code to arrive at the "positive
premiums (the first event) are revers-       of the current excess premium return
                                                                                         layering" approach as the correct ap-
ible within sixty days after the violating   at interest . Basis must also be recalcu-
                                                                                         proach . That is unfortunate, inas-
policy year. Alternately, benefit reduc-     lated for this reason .
                                                                                         much as it appears fundamentally il-
tion due to nonpayment of premiums             We have a similar problem on partial
                                                                                         logical to require a practice which
(the second event) is reversible within      surrenders, with a somewhat different
ninety days after the reduction, The         retroactive recalculation of basis (the     amended tax returns become common
issue here is . has the policy become a                                                  events in policyholder tax reporting.
                                             excludable portion of the withdrawal
MEC at the time of the violating event,                                                  Certainly It is not In the interest of the
                                             decreasing basis). On a MEC there is
or at the point at which It has become                                                   U .S . Treasury, the life Insurance in-
                                             "last In first out" treatment of partial
irreversible?                                                                            dustry, or the policyholder to suffer this
                                             withdrawals (income first) ; whereas on
   If the policy is considered a MEC at                                                  type of environment, and the code
                                             a non-MEC It Is generally "first in first
the time of the violating event . It leads                                               appears to be sufficiently vague to
                                             out"-except when a Section
to potentially severe administrative re-                                                 warrant Treasury' s Issuing a regula-
                                             7702(f)(7)(B) positive recapture ceiling
porting problems . These administra-                                                     tion permitting the "positive layering
                                             Is present.
tive requirements are already onerous,                                                   approach ."
                                               A substantial amount of this com-
and to confer MEC status at the time of                                                    As an alternative solution to the
                                             plexity possibly could be avoided If one
the violating event compounds the dif-                                                   amended return problem, any com-
ficulty.                                     could take the position that the policy
                                                                                         pany that wishes , at the time an excess
   Let's look at the following example : A   was not deemed to be a MEC until It
                                             became an "Irreversible MEC" and the        premium is made , can obtain a signed
policy Is issued in July 1988 . In No-                                                   authorization from the insured, stating
vember 1989 a premium in excess of           additional tax was not incurred until
                                                                                         that he or she wishes the policy to be a
the seven-pay limit Is paid . In Decem-      the year the "Irreversible MEC" status
                                                                                         MEC, Instead of accepting a return
     1989, a policy loan Is taken out, and   occurred . In such case , as in the above
                                                                                         premium . One company pursuing this
Wssumed that there is income in the          example, no Form 1099 would be sent
                                                                                         approach has informally indicated that,
contract . In January, 1990, because         for tax-year 1989 in the case of a loan .
                                                                                         once such authorization is received
the policy is deemed to be a MEC, the        Even in the case of a partial withdrawal
                                                                                         from the policyholder, the company will
insurer would then send a Form 1099          that is partly taxable, the Form 1099
in order to report the amount of taxable     sent in 1989 reports less than the tax-                       (continued on page 10)
10                                                                                               The Actuarial Update

                                                                                       a class-experience ." He then explains
                                           Centennial Portrait                         that "in the case of life insurance death
     Checklist of                                                                      occurs but once and in the case of fire
     Academy                               Albert Wurts Whitney                        insurance likewise the occurrence of a
                                                                                       fire is so rare that the experience of
     Statements                            Albert Wurts Whitney, in a eulogist's       risk is of little evidential value in itse
     July 1989                             words, "belonged to that select group of      His paper considers how the balance
                                           men whose intelligence , scientific in-     between class-experience and risk-ex-
                                           tegrity, perseverance and foresight         perience will depend on (1) the expo-
     TO: Senate Labor and Human            created the firm foundation from which      sure, (2) the hazard , (3) the degree of
     Resources Committee , July 6,         the rating structure of casualty insur-     concentration within the class, and (4)
     1989 . RE: Employer-provided          ance has been built ."                      the credibility of the manual rate, and
     health benefits . BACKGROUND :          Whitney contributed significantly to      how finding this balance is " strictly a
     This statement comments on the        the theory of experience rating with his    matter for statistical treatment," as
     proposed Basic Health Benefits        paper on that subject, published in the     "the detailed solution of this problem
     for All Americans Act of 1989. S.     1917- 1918 Proceedings of the Casu-         depends upon the use of Inverse
     768.                                  alty Actuarial and Statistical Society of   probabilities . . . ." The statistical for-
                                           America.                                    mulations then are presented in con-
     TO: Colorado Insurance Depart-          The paper outlines "the general line      siderable detail .
     ment, July 10, 1989 . RE : Pro-       of reasoning " behind the development         In conclusion, Whitney said that he
     posed regulations . BACK-             of experience rating, first conceiving of
                                                                                       hoped "the future may see important
     GROUND : This statement com-          experience rating as a problem "not
                                                                                       work done along these lines and that an
     ments on the definition of "quali-    found in life insurance , except poten-
                                                                                       actuarial theory for workmen's com-
     fied actuary" for regulating pur-     tially in group Insurance, and not at all
                                                                                       pensation insurance rating may be de-
                                           in fire insurance . . . ." Whitney states
     poses .                                                                           veloped as consistent and well-balanced
                                           that "the problem exists only in those
                                           forms of insurance in which there is a      as that of life insurance and going
     TO : Senate Finance Committee,                                                    beyond It in Its nicety of measurement ."
                                           risk-experience as distinguished from
     July 10, 1989. RE : Health cover-
     age for the uninsured . BACK-
     GROUND : This statement com-
     ments on health care financing
                                              Effective Casualty Loss Reserve
     and insurance .
                                              Opinions                                                                         0
MODIFIED ENDOWMENT                           The Academy Committee on Prop-              3 . Would standardized wording
CONTRACTS                                    erty and Liability Insurance Finan-         for particular situations be help-
(continued from page 9)                      cial Reporting is engaged in an evalu-      ful? Would it be helpful to high-
                                             ation of the effectiveness of the cur-      light the distinction between a
take the position that it has no obliga-     rent casualty loss reserve opinions,        clean opinion , a qualified opin-
tion to return the premium ifthe policy-     with the goal being to make sugges-         ion, or no opinion?
holder later changes his or her mind .       tions on how to improve their effec-
The date of such authorization would         tiveness in the future .                    4 . Should the telephone number
probably constitute the date of MEC ir-        An important part of this evalu-          of the opinion signer be required?
reversibility for companies wishing to       ation Is Academy members' com-
pursue this route . The chance such          ments. The committee would very             5. Would an actuarial report be
companies are taking , of course, Is         much appreciate members ' thoughts          more helpful than a one - or two-
policyholderdissatisfaction, if and when                                                 page opinion?
                                             on the topic . The committee will
the policyholder later requests a return
                                             also survey chief examiners of state
premium and the company refuses it .                                                     6. Is the department familiarwith
                                             insurance departments . Part of the
  Most companies are just beginning to                                                   the discipline process of the Acad-
                                             survey asks for narrative comments
wrestle with the administrative com-                                                     emy?
                                             about casualty loss reserve opin-
plexity that TAMRA 1988 has wrought .
The above issues are a small, but im-        ions . To stimulate thoughts . the
                                                                                       The key question Is : how can the
portant sample of those issues being         survey asks the following questions :
                                                                                       credibility of the casualty loss re-
discussed In the search for solutions,                                                 serve opinion be improved? Any
and an area in which a clarifying or            1 . Howmuch does the department
                                                rely on the opinions?                  and all comments would be wel-
enabling regulation from Treasury
                                                                                       come . Please direct your comments
would be most welcome.
                                                2. Does the department view dif-       or call to Edward Ford , at William
                                                ferently an opinion signed by a        M. Mercer, 1375 East 9th Street,
                                                companyemployee from one signed        Suite 2600 , Cleveland , OH 44114 .
Edward Robbins is a principal at Peat
MarwickMain & Co., Chicago. He would            by someone outside the company?        (216) 781-7634 .
appreciate your comments .
September 1989                                                                                                                      11

A Summary of the NAIC Actuarial Guidelines
The National Association ofinsurance Commissioners' (NAIC) Life and Health Actuarial (EX5) Task Force is often asked to assist
     to Insurance department in Interpreting a statute dealing with an actuarial topic . Guidance is especially important In the
    e of an unusual policy form or a situation that was not contemplated at the time a statute was drafted . To this end, the
task force has developed certain actuarial guidelines and will continue to do so as the need arises .
  The actuarial task force, in developing Its interpretation or guidelines, considers the Intent of the statute, the reasons for
initially adopting the statute, and the current situation It is being applied to . A guideline is not a statutory revision, but merely
a guide to be used In applying a statute to a specific circumstance .
  By publishing interpretive guidelines for situations that are sufficiently common to all states, the task force hopes to benefit
regulators in each state and promote uniformity in regulation-and thereby to benefit everyone .
  The table of contents for the Actuarial Guidelines is being printed in this Update for easy reference . Please note that the full
text of any one of these guidelines Is available upon request from the Academy's Washington office .



                                   ACTUARIAL GUIDELINES TABLE OF CONTENTS
 Guideline                                            Date Adopted                  Interpretation                 Revision of
    No .                Description                     by NAIC                           of                    Earlier Guideline

     1           Valuation of policies in                 Dec . '78            Standard Valuation Law                   No
                 which the net premium
                 exceeds gross premium

     2           Valuation of active life                 Dec . '78            Standard Valuation Law                   No
                 funds held relative to
                 group annuity contracts

     3           Definition of the term "ma-              Dec . '78            Standard Nonforfeiture                   No
                 turity value" in the Standard                                 Law for Individual
                 Nonforfelture Law for indi-                                   Deferred Annuities
                 vidual deferred annuities

     4           Minimum reserves for cer-               Dec. '84              Standard Valuation Law                   Yes
                 taro forms of term insurance

     5           Acceptable approximations               Dec . '79             Standard Valuation and                   No
                 for continuous functions                                      Nonforfeiture Laws
     6           Interpretation regarding                Dec . '79             Standard Valuation and                   Yes
                 use of single or joint life                                   Nonforfelture Laws
                 mortality tables

     7           Calculation of equivalent               Dec. '79              Standard Valuation and                   No
                 level amounts                                                  Nonforfeiture Laws

     8          The valuation of individual              Dec . '80             Standard Valuation Law                   No
                single premium deferred
                annuities

    9           Form classification of individ-          June '81              Standard Valuation Law                   No
                ual single premium annuities                                   and Standard Nonforfeiture
                for application of the Valu-                                   Law for Individual
                ation and Nonforfeiture Laws                                   Deferred Annuities

    9A          Use of Substandard                       June '89              Standard Valuation Law                   No
                Annuity Mortality
                Tables in valuing
                impaired lives under
                structured settlements
    9B          Clarification of methods                 Dec. '88              Standard Valuation Law                    No
                for deferred annuities and
                structural settlements
                contracts

     10         Guideline for Interpretation             Dec . '81             Standard Nonforfelture                    No
                of NAIC Standard Nonfor-                                       Law for Individual
                feature Law for individual                                     Deferred Annuities
                deferred annuities

                                                                                                                (continued overlea, f)
12                                                                                      The Actuarial Update


 Guideline                                    Date Adopted          Interpretation               Revision of
    No             Description                  by NAIC                   of                  Earlier Guideline

     11      Effect of an early election
             by an insurance company of
             an operative date under
             Section 5-C of the Standard
                                                 Dec. '82     Standard Nonforfeiture
                                                              Law
                                                                                                      No
                                                                                                              r
             Nonforfeiture Law for Life
             Insurance

     12      Interpretation regarding           June '83      Standard Valuation Law                  No
             valuation and nonforfeiture                      and Standard Nonforfeiture
             interest rates                                   Law for Life Insurance

     13      Guideline concerning the           March ' 85    Standard Valuation Law                  No
             commissioners ' annuity
             reserve valuation method

     14      Surveillance procedure              Dec. '85     Instructions for                        No
             regarding the actuarial                          Financial Examiners
             opinion for life and health
             insurers

     15      Illustrations guideline for        June ' 86     Variable Life Insurance                 No
             variable life insurance                          Model Regulation
             model regulation

     16      Guideline for calculation of        Dec . ' 86   Standard Valuation Law                  No
             commissioners' reserve valu-
             ation method on select mor-
             tality and / or split interest

     17      Guideline for calculation of        Dec . ' 86   Standard Nonforfelture                  No
             commissioners' reserve valu-                     Law
             ation method reserves when
             death benefits are not level

     18      Guideline for calculation           Dec . '86    Standard Valuation Law                  No
             of commissioners' reserve
             valuation method reserves
             on semi-continuous, fully
             continuous or discounted
             continuous basis

     19      Guideline concerning 1980           Dec. '86     NAIC procedure for permit-              No
             commissioners ' Standard                         ting same minimum non-
             Ordinary Mortality Table                         forfeiture standards for men
             with 10 year select mor-                         and women insured under
             tality factors                                   1980 CSO and 1980 CET"
                                                              Mortality Tables Model
                                                              Regulation

     20      Guideline concerning joint          Dec. '86     Standard Valuation Law                  No
             life functions for 1980
             commissioners ' Standard
             Ordinary Mortality Table

     21      Guideline for calculation          June '87      Standard Valuation Law                 No
             of CRVM reserves when (b)
             is greater than (a)

     22      Interpretation regarding           June ' 87     Standard Nonforfelture                 No
             nonforfeiture values for                         Law
             policies with indeterminate
             premiums

     23      Guideline concerning               June ' 87     Variable Life Insurance                No
             variable life insurance                          Model Regulation
             separate account
             investments

     24      Guideline for variable life        June '87      Standard Nonforfelture                 No
             nonforfeiture values                             Law for Life Insurance
                                                              and Variable Life Insurance                    41
                                                              Model Regulation

								
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