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AAA_ Actuarial Update_ 198804

VIEWS: 3 PAGES: 8

									. e             tlc~,uarial Upda e                                                                                t
VOLUME 17 NUMBER 4                             AMERICAN ACADEMY OF ACTUARIES APRIL 1988



                                         The Actuary of the Future: A Vision Explored
 In t his issue
                                         by George Soules

                                         In the March issue of Forbes magazine,        sees a possible conflict : "How do we
      2    From the President            actuaries are called "boring all the way to   broaden our perspective without weak-
                                         the bank ." The article enumerates the,       ing our technical foundation?" he asks .
                                         by now, familiar "characteristics" of the       The effort to determine what skills
      3    Letters to the Editor
                                         profession . Actuaries are indispensable      should be considered the common core
                                         to society, however, their skills are too     of knowledge possessed by actuaries does
                                         esoteric for public understanding; hence      not diminish the fact that these skills,
      4    Legal Lines
                                         the profession is small in numbers and        however defined, are well-suited for ap-
                                         likely to remain that way. The story fo-      plications beyond the traditional scope
      4    Standard Valuation Law        cuses on Barnet Berin, chief actuary at       of actuarial practice-life insurance and
           Committee Begins Its Work
                                         William M . Mercer, Inc ., who describes      employee benefits . A return to the "glory
                                         himself as more boring than an accoun-        days" of twenty-five years ago, when ac-
      4    Trowbridge to Write
           Monograph                     tant . Boring but bountiful, the article      tuaries literally strode atop the firma-
                                         suggests, is really not such a bad way to     nent of the life insurance industry, is
                                         be.                                           unlikely due to increased competition
           GAAP for Universal Life
P_5        Plans Unfold for the 1989
                                            Despite this generally rosy assessment,
                                         within the profession there is undis-
                                         guised fretting over the actuarial corpus
                                                                                       from other professions and a shift within
                                                                                       companies to organizations based on
                                                                                       "business units" rather than on "func-
      5    Centennial Celebration of
           the Actuarial Profession in   and its prognosis . Editorials have ap-       tions ." Yet the need for actuarial services
           North Am erica                peared in virtually all the actuarial pub-    in the relatively untapped arenas of gov-
                                         lications speaking out about the future       ernment, law, public health benefits, and
      6    P&C Seminar in October        course of the profession . Now, under the     in dealing with social problems in gen-
                                         auspices of the Society of Actuary's (SOA)    eral, is considered very promising. A dif-
                                         Committee on Planning, a Task Force on        ficult issue before the task force is how
      .j   Checklist of Academy
           Statements February 1988      the Actuary of the Future is busy peering     best to make decisionmakers in these
                                         into a crystal ball, hoping to come up        areas aware that actuaries have the right
           Fibiger to Receive            with a new vision for the profession in       stuff to do the job . Should this informa-
      7    UNL Award                     the 21st Century. Several meetings of         tion "seep through" to them or should
                                         the task force have already taken place,      actuaries be aggressive about convinc-
                                         and a report is due to the SOA's Board of     ing the world that they are the best
      8    Radio Roundup                 Governors in October 1988 . A major as-       qualified?
                                         signment of the task force is to develop a      Working on the latest frontier of actu-
                                         "vision matrix," matching skills with job     arial influence, as a financial actuary on
                                         functions in areas where actuaries could                         (continued on page 6)
                                         provide services . Another important item
 Enclosures                              on their agenda is to pin down the na-
                                         ture of "core" actuarial skills .
   Included in this month's issue of
                                            The need to step back and lay a solid                          CENTENNIAL
 The Update are the following :
                                         foundation before moving into uncharted
  •   Government Relations Watch          terrain is an approach favored by Jim
  •   In Search Of . . .                 Hickman, task force member and dean
  •   Standards Boxscore                 of the Business School at the University
  •   Nomination Card                    of Wisconsin . "We have to sort out what
  *Exposure Draft : Recommenda-                                                                 sue- CELEBRATION
                                          is basic and fundamental," he says . "That
    tions and Interpretations Con-        is a pre-condition ." Another leading         The Actuarial Profession . North America
    cerning Health Rate Filings          thinker on this topic, Fred Kilbourne, a
  • Recommendations for Measuring         managing director of Mercer-Meidinger-
    Pension Obligations                                                                   Story inside on how plans for this
                                          Hansen, concurs . "You don't have
  • Incurred Health Claim Liabilities    grounds for cohesion unless you know             event are shaping up.
                                         what is fundamental." But Kilbourne also
2                                                                                                                            The Actuarial Update


                                                                                                                 items that were in my report to the joint
                                                                                                                 executive committees : (1) possible estab-
                                                                                                                 lishment of an Actuarial Standa
    of Actuaries                                                                                                 Board, (2) discussion of a proposal
                                                                                                                 launch an actuarial magazine, (3) for-
    President                                                                                                    malizing the position of Director of Gov-
    John A. Fibiger                                                                                              ernment Relations, (4) continuing edu-
    President-Elect                                                                                              cation requirements and recognition for
    W. James MacGinnitie                                                                                         enrolled actuaries and other Academy
    Vice Presidents                                                                                              members, (5) theAcademy's annual meet-
    Phillip N . Ben-Zvi                                                                                          ing schedule, and (6) the participation of
    Committees on Public Issues-Insurance                                                   John A. Fibiger      the Academy in the ongoing debate on a
    Burton D . Jay                                                                                               national health care policy.
    Committees on Accreditation .                                                                                  But more importantly for a discussion
    Qualification and Communication                               "Not Necessarily the News"                     of the state of the Academy are items
    Joseph J. Stahl, II                                                                                          that would not be categorized as news .
    Committees on Public Issues-Employee                          Whether'in a company, in a professional        We do not expect to see headlines like "No
    Benefits and Social Insurance                                 association, or in any other human en-         Planes Crashed Today" or "Today, No
    Mavis A. Walters                                              deavor, good staff people can sometimes        Dogs Bit Any Postmen," because that is
    Committees on Accounting and                                  be a pain. This usually has nothing to do      not what we call news . It is the unusual,
    Financial Reporting                                           with their personality, but is related to      the different, the new, that commands
    Secretary                                                     the fact that it is often their job to re-     our attention when we read of an air-
    Virgil D . Wagner                                             mind you of obligations to which you           plane crash or hear about a canine en-
    Treasurer                                                     have already committed . Thus, I was           counter of the worst kind .
    Daniel J . McCarthy                                           initially less than cheerful when the note       With respect to professional activities,
    Executive Director                                            from the Academy's Director of Public          we see no headlines such as "Insurer
    Stephen G . Kellison                                          Information Erich Parker arrived, remind-      Makes Scheduled Payments" or "Insurer
    Executive Office                                               ing me that I owed The Update a mid-
                                                                                                                 Meets All Obligations in Calendar Year ."
     1720 [ Street, N .W. 7th Floor                               term editorial-sort of a "State of the
                                                                                                                 It's expected, it's not news, and yet it
    Washington, D.C . 20006                                       Union" piece .                                 takes the effective functioning of actuar-
    (202) 223-8196                                                   Erich's reminder arrived the same day       ial professionals served by an educati~
    FAX (202) 872-1948                                            that I was preparing a draft of my report      and standards-setting process to m
    Membership Administration                                     of what was going on in the Academy for        the system work.
    500 Park Boulevard                                            a meeting of the executive committees of          Here are ten items of non-news off the
    Itasca, Illinois 60143                                        the Academy, its founding organizations,       top of my head . The 1988 Yearbook is
    (312) 773-4204                                                and the Canadian Institute of Actuaries        out . The Enrolled Actuaries Meeting was
                                                                  in Phoenix, Arizona . At this meeting,         a great success . New members were ad-
                                                                  held once every two to three years, the        mitted to the Academy last month . The
                                                                  leadership of these five organizations         Academy Washington Briefing and Lun-
                                                                  meet separately and then jointly to go         cheon went well . The Academy put an
                                                                  over topics of current and mutual inter-       annual budget together. The Academy
    Chairperson                                                   est . There is so much going on in the         sent statements on a wide variety of
    Committee on Publications                                     actuarial profession these days, the meet-     topics of actuarial interest to a number
    Carl R . Ohman                                                ing agenda is full. Casualty Actuarial         of governmental and regulatory authori-
    Editor                                                        Society President Dave Hartman, who            ties . The Issues Digest was published.
    Charles Barry H. Watson                                       won the lucky turn of the roulette wheel       "Academy Alerts," are becoming an in-
    Associate Editor `                                            to be in charge of the meeting, suggested      creasingly popular news service. We con-
    Warren P. Cooper                                              that each president prepare a brief sum-       tinued to work on qualification stan-
    Managing Editor                                               mary of what was going on in that orga-        dards. The Interim Actuarial Standards
    Erich Parker                                                  nization in case there wasn't time for us      Board met recently. My list stops at ten,
    Contributing Editor                                           to report verbally.                            but I could easily go on to two or three or
    George Soules                                                    When faced with an obligation, there        four times that in length with the rou-
    Production Manager                                            Is always a tendency to find the easy way      tine activities on which the Academy is
    Renee M . Cox                                                 out by seeing if you can't recycle some-       actively representing the public interests
                                                                  thing that you had already used before .       of our profession.
                                                                  This, after all, is a time-honored actuar-       By the usual criterion, an item of news
                                                                  ial tradition, because in many cases we        is not that the Interim Actuarial Stan-
    American Academy of Actuaries
                                                                  recycle mortality tables or experience stud-   dards Board met, for example, but rather
    1720 I Street, N .W. 7th Floor
                                                                  ies when our "judgment" tells us that a        that the members of the Academy
    Washington, D .C . 20006
                                                                  new study or a new table would produce         very probably soon be voting on a byl
    Statements of fact and opinion in this publication,
    including editorials and letters to the editor, are made on   little additional information.                 amendment to accommodate its c
    the responsibility of the authors alone and do not
    necessarily Imply or represent the position of the
                                                                     Although my purpose is not just to          Into a permanent Actuarial Standards
    American Academy of Actuaries, the editors, or the            touch on topics of current interest, for
    members of the Academy.
                                                                  the record, here is a list of the unusual                        (continued on page 7)
April 1988                                                                                                                          3



Letters to the Editor
  espouse to Robertson                        workforce, making labor cheaper relative      long as the U .S . retains its democratic
                                              to productivity-enhancing capital invest-     system of government, one can be confi-
I am responding to A . Haeworth Robert-       ment .                                        dent that the retired population will share
son's analysis of the financial future of       Under Robertson's scenario, as the          in changes in the living standard in
Social Security (The Actuarial Update,        baby boom generation retires early in the     equal measure with the working popula-
February 1988) . Robertson's analysis fails   next century, participation in the work-      tion .
to take into account the dynamic nature       force will decline, while the rate of pro-                       Eric J . Klieber
of the U .S . economy.                        ductivity improvement remains un-                                Cleveland, Ohio
  The standard of living that U .S. citi-     changed . The result is a stagnant or even
zens enjoy derives from two sources : the     a declining standard of living . Robertson
productivity of individual workers, and
                                                                                            Throw 'Em a Herring
                                              then states the obvious : in this situation
the degree of participation by citizens in    the retired population will suffer along      The latest version of the Issues Digest is
the workforce. (This .picture is distorted    with everyone else .                          a landmark in the way that the Academy
to some degree by deficit spending, which       Unless one is predicting the economic       bureaucracy has got the profession to
represents . in effect, an advance on fu-     decline of the United States, a more likely   behave like trained seals .
ture production .) In the two decades fol-    scenario is that employers will respond         I know I belong to a profession that
lowing World War II, the standard of liv-     to the aging of the population by invest-     has vigorous disagreement among its
ing improved rapidly, primarily as a result   ing in labor-saving capital improvements      members . Yet in none of the "Academy
of productivity increases . More recently,    and by providing inducements for the          Recommendations" is there other than
productivity increases have flattened out,    elderly to remain in the workforce . Both     one-voice statements . Take, for example,
but higher participation in the work-         responses will mitigate the financial dif-    the AIDS issue . While some conflicting
force has contributed to maintaining rea-     ficulties of Social Security, the first by    ideas are commented on, the Academy
sonable improvement in the standard of        enabling workers to afford higher contri-     position is utterly one-sided . One knows
living . Indeed, the slow-down in the rate    butions, the second by reducing the av-       a position is unrealistically one-sided
of productivity increase stems in large       erage period of retirement.                   when a publication like Best's can es-
  ensure from entry into the workforce of       Nobody can predict with assurance           pouse concepts about this issue far more
    baby boom generation, as well as          the future course of changes in the United    liberal and wide ranging than the Acad-
  gher participation by women in the          States standard of living . However, as       emy's!
                                                                                              Look at FAS 87 and FAS 88 . Both
                                                                                            contain serious dissent on one or more
                                                                                            aspects of their contents . Look at any
                                                                                            Issues Digest or any formal Academy
                                                                                            publication, and you will find not one
                                                                                            position in which a minority have been
                                                                                            given the opportunity to contradict the
                                                                                            majority position . There are two places
                                                                                            appropriate to a publication so uncom-
                                                                                            promisingly one-sided : the trash can, or
                                                                                            a moderate-sized political library on the
                                                                                            same bookshelf as Mein Kampf, Das
                                                                                            Kapital, and Mao's Little Red Book .
                                                                                                                Jan R . Harrington
                                                                                                                New York, New York
                                                                                            Editor's reply : Contrary to Mr. Harrtng-
                                                                                            ton's views, theAcademy welcomes dis-
                                                                                            agreement and dissent. The basis for
                                                                                                              (continued on page 7)




                                                                                             The Update welcomes letters from
                                                                                             readers. Letters for publications must
                                                                                             include the writer's name, address,
                                                                                             and telephone number, and should
                                                                                             be clearly marked as Letters to the
                                                                                             Editor submissions . Letters may be
                                                                                             edited for style and space
                                                                                             requirements .
4                                                                                                            The Actuarial Update



Legal Lines
by Gary D . Simms


Allocation of Assets:                             The Academy's Executive Committee
                                                has decided that the Academy should file
In Search of a Definition                       a friend of the court (amicus curiae)
The debate whether pensions represent           brief and recommend that the Supreme
deferred wages or promises of future            Court review the case .
payments was at the heart of the debate           In Tilley, the key question is an intrepre-
over ERISAs enactment. A series of re-          tation of the plan asset allocation provi-
cent cases raise that issue in the context      sions in ERISA. For many years, it has been
of plan terminations and reversions of          understood that accrued benefits are sub-
"excess assets" by plan sponsors, with          ject to distribution to plan participants at
employee-participants arguing that they         the time of plan terminations . At first,
are entitled to more of the assets than         some reviewers felt that the judges in Tilley
sponsors are willing to concede.                and in Blessitt did not understand the
   In the most well-known case, Blessltt v .    natureof"accrued"benefits. Butuponanal-
Retirement Plan for Employees of Dixie          ysis, It appeared that the judges under-
Engine Co ., the U .S . Court of Appeals for    stood the distinction between accrued and
the 11th Circuit has recently vacated an        unaccrued benefits quite well . They under-
opinion that stated that participants were      stood that they were expanding the ac-           Charles L. Trowbridge
entitled to receive all benefits promised as    cepted definition of assets subject to distri-
ofa normal retirement date, including unac-     bution at termination considerably beyond        Trowbridge to Write
crued and forfeitable benefits . The court      previous practice .
has scheduled a rehearing en banc (all             Such an expansion calls into question
                                                                                                 Monograph
judges participating) on the issue.             the validity of the thousands of plan
   But while the 11th Circuit debates the       terminations that have taken place over          The Actuarial Education and Resear
definitions of "nonforfeitable benefits" and                                                     Fund (AERF) is pleased to annou
                                                the past decades and poses a danger to
"all other benefits" contained in ERISA's                                                        that Charles L . Trowbridge has bee
                                                the stability of the defined benefit pen-
allocation procedures , the 4th Circuit Court                                                    selected to write a monograph on the
                                                sion plan world . Due to the professional
of Appeals has rejected a request for a                                                          intellectual foundations of the actuarial
                                                nature of the Academy's role, our brief
rehearing in Tilley v. The Mead Corp.,                                                           profession . Trowbridge is the retired se-
                                                will focus on the actuarial nature of the
letting stand an opinion that found that                                                         nior vice president and chief actuary of
                                                questions before the court and will es-
former plan participants who had worked                                                          The Principal Financial Group .
                                                chew taking a position on the ultimate
more than thirty years at the time of plan                                                          During his distinguished career, Trow-
                                                question of statutory interpretation.
termination were entitled to receive early                                                       bridge served as chief actuary of the
                                                While individual pension practitioners
retirement benefits, even though the plan                                                        Social Security Administration, as pro-
                                                may disagree on the merits of the case,
also required them to reach age sixty-two                                                        fessor of actuarial science at the Univer-
                                                those within the Academy can all agree
to collect those benefits (which they had                                                        sity of Michigan, as editor of the Society
                                                on the need for a clear articulation by the
not done at the time of the termination) .                                                       of Actuaries' (SOA) newsletter, The Actu-
                                                Supreme Court of its interpretation of
The plan sponsor's request for rehearing                                                         ary, and as SOA president .
                                                this important statutory provision.
en banc being denied , the matter is now                                                           The need to define fundamental actu-
up for a writ of certiorari, a formal request                                                    arial concepts moved the Interim Actu-
that the U.S. Supreme Court rule on the         Sirnms is the Academy's general coun-            arial Standards Board to promote such a
matter.                                         sel .
                                                                                                 monograph under the sponsorship of
                                                                                                 the AERF The monograph will be a broad-
                                                                                                 brush portraiture of the profession, and
                                                                                                 not a textbook, stressing that actuarial
    Standard Valuation Law Committee                                                             science derives from certain ideas or con-
    Begins Its Work                                                                              cepts used by all actuaries . The mono-
                                                                                                 graph is intended to be a device for
    The reconstituted National Association of Insurance Commissioners' Special                   unifying and coordinating the profes-
    Advisory Committee of the Standard Valuation Law, chaired by John Tweedie,
                                                                                                 sion, and as a foundation upon which
    has received its charge from John Montgomery, who chairs the NAIC Life and
                                                                                                 actuarial standards can be built .
    Health Task Fbrce. It is : By May 1989, this advisory committee will develop a
                                                                                                   A distinguished panel of reviewers will
    draft model law and accompanying regulations that would require each com-
                                                                                                 review the manuscript at various ti
    pany to submit an acceptable opinion by a qualified actuary, supported by an
                                                                                                 to ensure that all areas of practice
    appropriate memorandum describing the basis of such opinion, as to the
                                                                                                 appropriately covered . AERF intends to
    adequacy of certain specified reserves and the assets supporting such reserves .
                                                                                                 publish the monograph in time for the
                                                                                                 1989 Centennial Celebration.         a
 April 1988


                                                                                               porting Recommendations and Inter-
 GAAP for Universal Life                                                                       pretations . As a result, the Interim
                                                                                               Actuarial Standards Board has re-
    Jan L . Pollnow
                                                                                               quested and the Committee on Life
                                                                                               Insurance Financial Reporting Princi-
                                                   ance in-force or annuity benefit            ples has agreed to incorporate the
 In a publication dated December 1987,
 the Financial Accounting Standards                payments .                                  changes necessitated by FAS 97. These
 Board (FASB) promulgated accounting                                                           changes are principally in Recommen-
                                                (6) Gains and losses that result when          dations I and 5 . The committee will
 standards for three classes of long-
                                                   life insurance contracts are replaced       also attempt to replace references to
 duration contracts (universal life-type,
 limited pay, and investment contracts) .          by universal life contracts, within the     the Audit Guide with references to FAS
 It also changed the standard for report-          same company, shall be immediately          60, as appropriate . The handling of
 ing realized gains and losses .                   taken into income (i .e., not deferred) .   investment gains and losses will not
   The official title of the new publication                                                   be addressed, and a decision on
                                                (7) Realized investment gains and losses
 is "Accounting and Reporting by Insur-                                                        whether to address investment con-
                                                   shall be reported as a pre-tax compo-
 ance Enterprises for Certain Long-                                                            tracts has not been made.
                                                   nent of other income, rather than as
 Duration Contracts and for Realized                                                             It is currently envisioned that the pro-
                                                   an after-tax item below operating
 Gains and Losses from the Sale of Invest-                                                     posed changes will be ready for distribu-
                                                    income .
 ments," (FAS 97) . It specifically singles                                                    tion to Academy members by October
 out the three classes of long-duration         (8) FAS 97 is effective for fiscal years       1988.
 contracts that are to receive treatment           beginning after December 15, 1988,
 different from that described in FAS 60,          with earlier application encour-
 "Accounting and Reporting by Insurance            aged, The changes adopted shall be
 Enterprises."                                     used to restate prior financial state-
                                                                                               Potinow is a member of the Commit-
   The key items in FAS 97 are set forth           ments . If restatement is not practi-
                                                                                               tee on Life Insurance Financial Re-
 below.                                            cal, the cumulative effect shall be
                                                                                               porting, FAS 97 is aenilablefrom the
                                                   included in net income in the year
 (1) Universal life shall be accounted for                                                     OrderDepartment, Financial Account-
                                                   the statement is adopted .
     using the retrospective deposit                                                           ing Standards Board, HighRidgeFark,
     method . This essentially means the          The changes will have a significant          P. O. Box 3821 . Stamford, Connecticut
     account balance will be used as the        impact on the Academy's Financial Re-          06905-0821 .
     liability
 (2) Revenues for universal life are
    amounts assessed against policyhold-
    ers (i .e ., expense charges, interest
    liftoff, cost of insurance, and surren-
                                                  Plans Unfold for the 1989 Centennial
    der charges), rather than premiums            Celebration of the Actuarial Profession
    collected,

 (3) Deferred acquisition expenses for uni-
                                                  in North America
     versal life are to be amortized in pro-
     portion to the present value of the          The actuarial profession will commemorate a century of challenge, growth, and
     estimated gross profits (e .g., invest-      achievement on June 12-14, 1989 in Washington, D .C . Hosted by the Confer-
     ment income earnedless interest cred-        ence of Actuaries in Public Practice, the American Academy of Actuaries, the
     ited to policyholder balances) . The         Canadian Institute of Actuaries, the Casualty Actuarial Society and the Society
     estimates of gross profit shall be eval-     of Actuaries-this special event is shaping up to be one meeting in 1989 you will
     uated regularly, and the total amorti-       want to be sure to attend .
     zation to date shall be adjusted to            The Centennial Celebration will feature :
     reflect actual experience .
                                                   • distinguished speakers , like management consultant authority John Die-
 (4) Contracts that do not have signifi-             bold, who is a luncheon speaker, and academician Professor Hans Buhlmann,
    cant insurance risk (e .g., the accu-            who is scheduled to speak on the intellectual foundations of the actuarial
     mulation period on most deferred                profession as part of a panel discussion entitled : The Challenge from Within ;
     annuity contracts) are called invest-
     ment contracts and shall be treated           • honored overseas visitors , representing actuarial organizations from around
     in a manner consistent with interest-           the world ; and
    bearing or other financial instru-
                                                   • first -rate entertainment , including the spectacular Canadian Brass .
     ments . Payments received are not con-
     sidered as revenue .                            You have already received a preliminary announcement on the Centennial
  Limited-payment contracts shall be               Celebration ; as more program details become available, you will receive a
                                                   follow-up mailing .
W accounted for as in FAS 60, except
  that any gross premium in excess of                In the meantime, mark your calendar now in anticipation of this very special
  the net premium shall be deferred                occasion .
  and recognized in relation to insur-
6                                                                                                           The Actuarial Update


A VISION EXPLORED                                  But preceding the issue of how prop-         other things such as law, economics,
(continued from page 1)                         erly to educate actuaries is an acknow-         investments , and regulation ."
                                                ledgement that the profession is not at-          Projecting a more dynamic , compete
Wall Street, Jim Tilley, managing direc-
                                                tracting enough candidates to the field         image of the actuary will not succee,
tor of Morgan Stanley, believes "it is highly
                                                in the first place. The Forbes article points   according to those deliberating on the
presumptuous for us to put actuaries in
                                                this out in painful detail . It refers to how   issue , unless the profession 's members
a position where we are indispensable.
Where I differ from my colleagues is that       the profession's absence of glamor makes        are able to communicate the extent of
                                                it difficult for companies to recruit on        their abilities to employers and the pub-
I don't think we can create these skills-
that's not achievable ." Tilley says actuar-    campus . Quoted to this effect is Patrick       lics they serve . The failure to do so to
ies need to "round out their skills base,"      Studley, a Met Life actuary who says : "We      date has been ascribed to the notion that
and the profession should recruit more          spend half the time on a campus inter-          actuaries are often poor communicators.
"business-oriented" people with training        view telling students what actuaries are ."     As a result , actuaries are also said to lack
in financial theory and economics . An-           That actuaries are not as well-recognized     the leadership skills necessary to com-
other of Tilley's suggestions is to Include     as their mathematical cousins, the accoun-      pete at the top levels of corporate man-
specialty tracks, such as one for invest-       tants and economists, is something the          agement. Can actuaries learn leadership?
ment, on the examination syllabus .             profession has learned to endure if not         The task force is not so sure . Hickman
  In personal terms, Tilley's path to suc-      accept. The task force is considering ways      says finding good leaders is an endemic
cess in investment banking on Wall Street       to change this perception or, put another       problem in the business world because
is unconventional, involving years of prior     way, It has set about figuring out how the      of the downsizing of American indus-
experience with mergers and acquisitions,       profession can successfully lure non-           tries and the poor leadership training
a career track, in other words, not readily     actuarial candidates such as MBAs and           received in our school systems .
taken by the average actuary. Tilley appears    economists to the fold .                          If this is the case, then actuaries are in
to relish being in the vanguard of change .       Kilbourne points out that this effort is      no different a position , or disadvantage,
He refers to actuarial cohorts on Wall Street   impeded because the profession does not         than other professionals striving for power
as zealously entrepreurial-a breed apart.       have easily identifiable degree designa-        and influence in a competitive business
"We are not bound by what has already           tions such as Ph .D, CPA or MBA. "We            world. Or are they ? In a recent address that
been done," he says . "We are creative . . .    need to drum up the image," he says, by         touched on this subject, Michael Walters,
and restless ."                                                                                 then president of the Casualty Actuarial
                                                making the designation of FCAS or FSA,
   Do other actuaries have the nascent                                                          Society, pointed out that "the very analyti-
                                                for example, more recognizable . The
drive and ability of a Jim Tilley, qualities                                                    cal orientation of actuarial training is
                                                length and difficulty of the examination
seemingly essential to survival in the                                                          partial conflict with a basic tenet of m
                                                system is also a drawback to recruit-
financial services arena? More pragmat-                                                         agement training. Management training is
                                                ment, even though the system is fair and
ically, could actuaries in mid-career, for                                                      `the art of getting things done through
                                                equitable, Jim Murphy, vice president
instance, be retrained so as to be able to
                                                and chief actuary of Northwestern Mu-           others' and implies a certain letting go of
calculate stochastic interest rates and
                                                tual Life and chairman of the task force,       technical details . . . actuaries on the other
deal effectively with the dynamics of Wall
                                                is concerned that the heavy math em-            hand are trained to cut through to the
Street? Jim Hickman fears that the"tech-
                                                phasis "frightens away" many potential          heart of the problem and to try to solve it
nical explosion" occurring within the in-
                                                actuarial students . He laments that "we        themselves."
vestment banking field is beyond the
                                                don't do as good a job as we could" in            Reconciling these contradictory ele-
tools of most actuaries, and he is person-
                                                attracting candidates with more diverse         ments is one of the challenges that the
ally "quite discouraged" about the pros-
                                                backgrounds, and he argues that the             profession must come to grips with as it
pect of employers initiating the job of
                                                university should play a larger role in         forges into the 21st Century.
retraining. Moreover, he believes the
                                                promoting the profession and in estab-
middle-aged actuary is "unwilling" to un-
dergo intensive retraining. His interme-        lishing contacts with employers who need        Next month , The Update will feature
diate solution would be to expand the           actuarial services . His vision of the actu-    part two of SouIes ' Iook at thefuture of
current two- and three-day seminars that        ary of the future is someone "knowing           the actuary and the actuary of the fu-
are a part of the actuary's continuing          the technical underpinnings, as well as         ture .
education into three- and four-week "ex-
ecutive development" programs.
  One of the criticisms leveled is that the        P&C Seminar in October
university system does not adequately             The Canadian Institute of Actuaries and the Casualty Actuarial Society are
support the profession by attracting and          jointly sponsoring a two-day seminar, October 3-4, 1988, on property/casualty
training well-rounded individuals for ac-         loss and policy liabilities . This seminar will provide discussion on principles,
tuarial service . Hickman responds that           current practices, and issues in Canada of interest to fairly broad audience,
the university is not necessarily in the          including actuaries, actuarial students, and other individuals involved in this
right position to provide the training            subject area.
required . For example, running a semi-              The seminar will be held at the Sheraton Centre in Montreal, Canada . For
nar on the new Social Security integra-
                                                   more information, write to Canadian Loss Reserve, c/o Canadian Institute of
tion rules is not within the university's
                                                   Actuaries, 360 Albert Street, Suite 405, Ottawa, Ontario, K1R 7X7, or telephone
scope, says Hickman, whereas it is within          (613) 236-8196 .
its role to foster the study of, say, the
epidemiology of AIDS .
  April 1988                                                                                                                             7


                                                                                               emy committees strive to write state-
                                                                                               ments that in some way re  flect the views
      Fibiger to Receive                          Alumni Center. The Award of Merit is         of the entire committee , which comprise
                                                   made in recognition of Fibiger' s assis-    a cross-section of membership .
      U NL Award                                   tance to the actuarial science program
                                                  at the University of Nebraska-Lincoln        Numerical Errors
                                                  during its early years . Fibiger was an
                                                                                               I fear that the publishing of a report that
                                                  actuary with Bankers' Life of Nebraska
                                                                                               appears to have at least three numerical
                                                  from 1959 to 1973 . During this period,
                                                                                               errors will do little to "strengthen our
                                                  he served on the Actuarial Science Chair
                                                                                               profession" ("Chart of Actuarial Organi-
                                                  Committee ; he helped recruit faculty
                                                                                               zation Membership," The Actuarial Up-
                                                  and students, and he assisted in rais-
                                                                                               date, January 1988 .)
                                                  ing funds to support the new program .
                                                  The efforts of Fibiger and others in                          Lucian R. Lee
                                                  these crucial early years provided the                      Taylors, South Carolina
                                                  foundation for one of the country's most     Managing Editor's reply : You are so right;
                                                  successful actuarial science programs .       the numbers are incorrect. The total
     Academy President John Fibiger has           The program has grown from zero in           Academy membership (column 2)
     been selected for the 1988 Award of           1957 to a current enrollment of 150         should have read 8,887 . The numbers
     Merit by the Alumni Association of the                                                     we printed were what our blurred tele-
                                                  undergraduates and thirty graduate stu-
     University of Nebraska (UNL) . This award                                                 faxed original copy appeared to read .
                                                  dents, participating in three degree
     is given once each year to recognize         plans .                                      Machines as well as people can be
     outstanding contributions to the uni-                                                      imperfect.
                                                    Recognition of Fibiger's support is
     versity.                                     especially appropriate this year, for it
       The Award of Merit was presented at        is the program's thirtieth anniversary.
     the College of Arts and Sciences Alumni      He remains a friend and supporter of
     Reception on March 31 at the Wick            the UNL actuarial science program .

                                                                                               Checklist of Academy
    OM THE PRESIDENT                              normallywould have as an Academy mem-        Statements
  continuedfrom page 2)                           ber. You, the membership, can be confi-
                                                  dent that these people go about their
                                                                                               February 1988
  Board . Yet what the Academy members            business of not making any news, be-         Copies available from the Washington
  really need to know, in my view, Is not so      cause what should be done usually turns      office . Please request statements by date
  much of the unusual events , but more           out to be done--and done well . It may       of release .
  that the Academy, itself, and Its commit-       only be routine, but Academy members
                                                  can be well satisfied by what staff does       TO : Various members of Congress, Feb-
  tees and staff are functioning very well
                                                  on their behalf, even though it's "Not       ruary 4, 1988 . RE : Pension legislation .
  on behalf of the membership .
                                                  Necessarily News ."                          BACKGROUND : Letter to various mem-
     Turning back briefly to staff, I hasten
                                                                                               bers of Congress expressing the Aca-
  to amend my statement that staff people
                                                                                               demy's concern regarding the effect of
  can be pains. It is not the staff people
                                                                                               current pension policy on the private
  who are painful, but rather the obliga-
                                                                                               pension system.
  tions that we have accrued unto our-            Fibiger's next editorial will appear in
  selves that they remind us of . Some peo-       the September edition of The Actuarial         TO : Department of the Treasury, Feb-
  ple have a tendency to "shoot the               Update . It will be his final editorial as   ruary 16, 1988 . RE : Valuation of health
  messenger," and that can make a staff-          president.                                   and welfare plans. BACKGROUND: Out-
  er's life hard . Without the messages,                                                       line of a proposed valuation methodology
  though, the reality often becomes much                                                       as required under IRC Section 89, en-
  more difficult. In the case I'm citing,                                                      acted as part of the Tax Reform Act of
  Erich was reminding me in a timely              LETTERS TO THE EDITOR                        1986 .
  fashion of an obligation already incurred .     (continued from page 3)
  Because he did, I didn't have to respond                                                       TO : NAIC, February 19, 1988. RE :
                                                  the "Academy Recommendations "in the         Health insurance reserve standards .
  to that obligation in a post-deadline panic .
                                                  Issues Digest are the official statements    BACKGROUND : Two alternative revisions
     This says something about the state of
                                                  of the organization, as crafted by its       of the previous draft of proposed reserve
  the Academy that I would like to close on :
                                                  committees. Where a committee state-         standards for health insurance, dated
  Academy members are well served by a
                                                  ment reflects dissent, the summary rec-      September 10, 1987 .
       pet ent, loyal, and interested group of
     o le in the Washington office (as well       ommendation likewise reflects disagree-        TO : Social SecurityAdministration, Fbb-
J our membership manager in the Itasca            ment. It so happens that there were not      ruary 25, 1988. RE : Projected Social Secu-
  office) . One of the great pleasures of my      other than unanimous committee state-        rity benefits . BACKGROUND . Comments
  position has been the opportunity to            ments from which to draw in putting          on information contained in recently is-
  deal with more of these people than I           together this year's Issues Digest. Acad-    sued Social Security pamphlet, 0
8                                                                        The Actuarial Update




                                                 4UJ[
       Q&DD110 ROUNDUP
       a collection of features, oddities,
       and helpful tips


                                                    169 WORDS, 68 SECONDS


                                        TEST YOURSELF


                    HERE'S A QUESTION TO TEST YOUR VOCABULARY . WHICH OF
                  THESE PEOPLE CAN ESTIMATE MOST ACCURATELY HOW LONG
                  YOU ARE LIKELY TO LIVE? (A) AN ASPIRANT . (B) AN ASCETIC .
                  (C) AN ACTUARY . (D) AN ACCOUNTANT .
                    IF YOU CHOSE ACTUARY, YOU'RE RIGHT! ACTUARIES USE
                  ADVANCED MATHEMATICS TO CONSIDER HOW FACTORS LIKE
                  SMOKING AND BODY WEIGHT AFFECT A- PERSON'S LIFESPAN .
                  INSURANCE COMPANIES USE MANY DIFFERENT KINDS OF
                  ACTUARIAL STATISTICS TO DETERMINE HOW MUCH YOU SHOULD
                  PAY INTO YOUR INSURANCEOR PENSION PLANS, SO THATTHE
                  MONEY'S THERE WHEN YOU NEED THE BENEFITS .
                    ACCORDING TO THE AMERICAN ACADEMY OF ACTUARIES,
                  THERE ARE ABOUT ELEVEN THOUSAND OF THESE MATH
                  EXPERTS IN THE WORKFORCE . COMPARE THAT TO THE NUMBER
                  OF PRACTICING ATTORNEYS IN THE UNITED STATES, SOME SIX
                  HUNDRED AND FIFTY-FOUR THOUSAND, AND YOU GET AN IDEA
                  OFJUST HOW SMALLA PROFESSION IT IS . THEIR NUMBERS MAY
                  BE SMALL, BUT THE ECONOMIC INFLUENCE OF ACTUARIES IS
                  FAR-REACHING .




    The script reprinted above, issued by the Academy, was used by 246 radio stations in 40
    different states, reaching over 14 million listeners .
                                                                                              16

								
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