(ve.Aduafial UpdateVOLUME 18 NUMBER 8

In t

2

his issue

From a Guest President

3 Letters to the Editor

3 Actuaries Draw National Press

4 The Challenges ofProfessionalism

5 Come to the Annual MeetingOctober 15-18

6 The Challenge from Within

7 The Challenge from Without

8 Academy Hires Director ofGovernment Information

9The Challenge from theLeadership

10 Response to the Challenges

11 Thompson Testifies at IRSHearing

11Qualifications, C.E. ReportsAdopted

11 Call for Volunteers

12 Limited Liability atLloyd's?-Reinsurance Issues

13 Health Policy and the Actuary

14 Checklist of AcademyStatements-June 1989

15 Professional Standards atHome and Abroad

1 Actuarial Principles vs . theSocialization of Risk

EnclosuresIncluded in this month's issue of

The Update are the following :• Government Relations Watch*In Search Of . . .• ASH Boxscore and Fact Book• Final Reports on ContinuingEducation Recognition and onQualification Standards

• Supplemental List of Members

AMERICA ACADEMY OF ACTUARIES AUGUST 1989

1989 Centennial Celebration of theA Profession in North AmericaJune 12-14 , n, D.C.

Opening of theCentennial Celebration"Happy Birthday!" was the opening sal-utation, spoken exuberantly by ThomasBowles, steering committee chairpersonfor the centennial. From the podium inthe large, flag bedecked ballroom of theSheraton Washington Hotel, he repeatedthe invocation : "Happy Birthday!" In spiteof the early hour (the opening sessionbeganat8 :45 a.m. onMonday), the 1,212assembled guests apparentlywere rousedby Bowles' enthusiasm. "Happy Birth-day!" they responded.

"Welcome to the centennial celebrationof the actuarial profession ofNorthAmer-ica!" he continued, his face beamingfrom the huge, simultaneous video dis-play. "During these next three days weshall reexamine the intellectual founda-tions of our profession, and we shallrecommit ourselves to serving the pub-lics who benefit from our professionalskills and experience . These days indeedwill be both a celebration and a launch-ing pad for our thrust into the future ."After the Alexandria Royal Fifes and

Drums processed to and from the stageplaying "Presentation of the Colors,"

Bowles began to formally present someprominent attendees. "Over the years,we in North America have benefitedgreatly from an infusion of strength andvitality from our peers overseas," he ac-knowledged, introducing the presidentsof the Institute of Actuaries in Englandand the Faculty of Actuaries in Scotland :Roger Corley and Bill Morrison . Mr.Bowles reported that forty-two membersof the Institute and Faculty were in at-tendance, and that in all about 100 del-egates representing 23 nations had cometo Washington, D .C., to participate inthe North American centennial .Bowles then introduced the presidents

of the five organizations sponsoring theNorth American centennial : Jim MacGin-nitie of the Academy, Peter Hirst of theCanadian Institute of Actuaries, KevinRyan of the Casualty Actuarial SocietyDavid Hewitt of the Conference of Actu-aries in Public Practice, and Ian Rollandof the Society of Actuaries . In the spiritof celebrating 100 years of professional-ism, he then introduced 10 actuarieswho had served the profession 50 ormore years, and together had contrib-uted more than 500 years of service .

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American Academyof Actuaries

PresidentW. James MacGinnitiePresident-ElectHarold J. BrownleeVice PresidentsPhillip N. Ben-ZviCommittees Under the Supervision of theVice President-CasualtyHarper L. Garrett, Jr.Committees Under the Supervision of theVice President-HealthJohn H. HardingCommittees Under the Supervision of theVice President-LifeJoseph J . Stahl IICommittees Under the Supervision of theVice President-PensionsSecretaryVirgil D. WagnerTreasurerDaniel J. McCarthyExecutive Vice PresidentJames J. MurphyExecutive Office17201 Street, N.W. 7th FloorWashington, D.C. 20006(202) 223-8196FAX (202) 872-1948Membership AdministrationWoodfield Corporate Center475 N. Martingale RoadSchaumburg, Illinois 60173-2226(312) 706-3513

ChairpersonCommittee on PublicationsCarl R. OhmanEditorCharles Barry H . WatsonExecutive EditorErich ParkerAssociate EditorWarren P. CooperManaging EditorJeanne CaseyContributing EditorGeorge SoulesProduction ManagerRenee Cox

American Academy of Actuaries17201 Street, N.W. 7th FloorWashington, D .C. 20006Statements of fact and opinion in this publication ,indudinR editorials and letters to the editor, are madeon the responsibility of the authors alone and do notnecessarily imply or represent the position of theAmerican Academy of Actuaries. the editors, or themembers of the Academy.

Roger CorleyTwo separate meetings, two weeks andan ocean apart, served well to demon-strate the international dimension of amajor issue facing our profession .

The first of these meetings took place inWashington, D.C., during the splendid cen-tennial celebration. I was privileged to beinvited to join in those days, when all thevisitors from overseas were made to feelthoroughly and continuouslywelcome, andI found much to interest me and much toenjoy. However for me, and I have no doubtfor many others, the highlight in terms ofstimulus and a call for action was thegeneral session on Tuesday morning, wheneach of four outstanding speakers pre-sented his views on "The Challenge fromWithout ."

The threats and challenges that theylisted were numerous and varied, butthe question that I heard runningthrough the whole session was whetherour profession is prepared to do what-ever is necessary to ensure that it is incontrol of its own destiny. Do we knowwhether we have the will, as a profes-sion, to be responsible for the financialprobity and long-term viability of theinstitutions and funds that we advise?Or are we content to allow the responsi-bility to rest with governments and theirfunctionaries, seeing our own role asmerely certifying that we have valued theliabilities in accordance with the rules?There is, of course, no doubt about

where the British actuary stands in thisdebate (having been subjected to in-creased supervision in the last fewyears),and it was a delight to listen to BobHammond describing the creation in Can-ada of an environment based on freedomwith disclosure .

In London, exactly fourteen days later,I was in the chair for a joint meeting ofthe Institute of Actuaries and Faculty ofActuaries, which had been called to dis-cuss a specially commissioned paper en-titled "A Single European Market for Ac-tuaries." We were fortunate for this eventin having a number of friends from thecontinent join us so that all the coun-tries of the Economic Community exceptSpain and Portugal were represented .

The Actuarial Update

The paper was restricted to reviewingcurrent actuarial involvement in super-vision and control of life assurance ithe twelve countries, and consider'the possible effects of harmonization ofsupervision on the products of life officesand on the statutory and professionalposition of actuaries . Methods of super-vision vary from country to country, butthere is a broad division between GreatBritain and Ireland, where reliance isplaced on the judgment of a designatedactuary, and the other ten countries inwhich strict regulations are designed tomaintain financial security.An interesting feature of the discus-

sion was that some of the actuaries fromcontinental Europe could see benefits inoperating in a somewhat more flexibleenvironment, but did not think that thiswould make much difference to theirwork, whilst the British actuaries regret-ted the loss of flexibility already broughtabout by legislation over the last fewyears and saw any further inroads as ahuge threat to the work and standing ofthe profession. Perhaps this links withsomething Jim Anderson was express-ing in Washington, in that those whohave not been brought up to expect re-sponsibility see little need to fight tisecure it.

The preferred destiny of the professionmust be to be considered worthy of mean-ingful responsibility built onto our tech-nical expertise, and this means that wemust develop a reputation for sound andbroadly based judgment. It is difficult tosee how this can ever be achieved inthose countries where actuaries ignorethe assets and focus narrowly on theliabilities .

In order to gain the recognition andstatus that our combined intellectual ca-pabilities deserve, we have to work hardto pull the profession together, not onlywhere artificial divisions within a coun-try hinder progress, but also interna-tionally, so that we can have the confi-dence to push the profession to undertakemore and more responsibility. One way

(continued on page 3)

The Update welcomes letters fromreaders . Letters for publication mustinclude the writer's name, address, andtelephone number, and should be clearlymarked as Letters to the Editor sub-missions. Letters maybe edited for styleand space requirements .

August 1989

Letters to the Editor

Personal Plug for Volunteers

The Committee on Property and LiabilityIssues is looking for a few good membersto add to its roster. During the past year,we have been actively involved in theMcCarran-Fbrguson repeal movement,the Dingell hearings on insurance com-pany insolvencies, and many other polit-ical and regulatory issues that confrontactuaries in the insurance industry.Over the next year, we will continue

our involvement in Washington . We ex-pect to have considerable input into theProposition 103 rate hearings . If you areinterested in joining our committee andperforming a valuable service for the pro-fession, please call me at (203) 244-8985 .

Robert V. DeutschSimsbury, Connecticut

Mr. Deutsch, chairperson of the Com-mittee on Property and Liability Issues,is senior vice president and chiefactu-ary with Executive Re Inc .

April in Paris!We are organizing, in conjunction withthe French Actuarial Associations, thefirst International AFIR Colloquium,which will be held in Paris from the 23rdto 27th of April 1990 at the Interconti-nental Hotel. AFIR is the new financialsection of the International Actuarial As-sociation (IAA), and its colloquium willbring together actuaries and non-actuaries on the general theme : "Actuar-ial Approach to Financial Risks ."You are invited to take part in the

organization of the colloquium by send-ing us, before September 30, 1989, yourcontribution regarding your work andresearch in this area . It also would behelpful if you would let me have thenames and addresses of those you be-lieve might also be interested in partici-pating.

Jacques ChevalierParis , France

Over 200 U.S . actuaries have becomemembers of theAFIR section, and a largenumber of them have expressed theirinterest in attending the April collo-quium . However. U.S. actuaries are stillunder-represented in terms of contrib-uted papers. Papers in English orFrenchmay be sent to: AFIR Secretariat ; 5,Avenue de L'Opdra ; 75001 Paris, France.

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Actuaries Draw National Press

On June 13, a news conference highlighting some of the research findingsfrom the profession's centennial meeting was held at the National Press Clubin Washington, D.C. The briefing was organized under the auspices of theForecast 2000 public relations campaign. In attendance were reporters fromthe Journal of Commerce, Washington Post, Barron's, Associated Press, Asso-ciated Press Radio, Kiplinger Washington Letter. Biznet's "Nation's BusinessToday," National Underwriter, National Media Services, Pension and Invest-ment Age, Pension World, U .S. Association Executive, BNA Pension Reporter,Thompson Newspapers, Small Newspaper Group, Prentice Hall, and FDCReport. The Washington News Network videotaped the event.

Meeting with the press were James J. Murphy, executive vice president,American Academy of Actuaries; Bartley L. Munson, principal, Mercer-Meidinger-Hansen ; Robert Brown, University of Waterloo ; Yuan Chang, vicepresident, Metropolitan Ltfe; RobertSturgis, vice president and director, Tilling-hasilTowersPerrin; andBarnetBerin, chief actuary, Mercer-Meidinger-Hansen .Each representative of the profession reported on a different, newsworthyfinding or topic. For example, Robert Sturgis discussed the cost of the tortsystem, Bartley Munson, shaping thefuture of health care.The Update will continue to keep Academy members Informed of the

Forecast 2000 campaign and the profession's ongoing effort to bring actuariesand their work into the public eye.

FROM A GUEST PRESIDENT(continued from previous page)

to move toward achieving this aim maybe not only to determine the "actuarialcore" that runs through all our work,and which Charles Trowbridge, JamesTilley, and Sidney Benjamin have doneso much to illuminate, but to gain inter-national acceptance for this and then toanalyze, country by country and sectorby sector, what is added, in terms oftechniques, professional judgments, and

standards. By learning from each otherand building on our strengths, we mayindeed be able to create a profession ofinternational standing, capable of meet-ing not only the challenges of a unifiedEurope, but also those expressed so clearlyby the four wise men in Washington.

Mr. Corley is president of theInstitute ofActuaries in Great Britain. A report onthe session , "The Challenge from With-out," referred to by Mr. Corley, appearson page 7.

4

The Challenge of Professionalism

Justice Estey'sKeynote Address"I rise in a foreign land, to speak on aforeign subject, with what some maythink is a foreign accent," began WillardEstey, former chief justice of the Su-preme Court of Canada, "and I take greatcomfort in the fact that a thousand yearsago Julius Caesar probably stood in thesame position as he addressed the actu-arii of Rome."Although actuarial science may be, in

some sense , a "foreign subject" to "Bud"Estey, professionalism is not. "On routeto Canada's highest court, Bud Esteyacquired a reputation for possessing oneof the quickest legal minds in the coun-try," said John Gardner, introducing Es-tey. Most recently, Justice Estey "directedthe inquiry into the failure of two middle-sized Canadian banks ." Gardner elabo-rated: "Tremendous publicity stemmedfrom this inquiry, for not many banks inCanada have failed," and Justice Estey's"strong sense of professionalism wasmade very clear to the Canadian publicin the case of these two failures.""

Hallmarks ofa ProfessionIn the course of his speech, Justice Esteyenumerated three general requirementsfor any profession . "First of all, theremust be associated with the profession'sundertakings-skilled, intellectual tech-niques." This first requirement assumesa "voluntary association at the core ofthe profession," "a code of conduct" witha "formalized mode of enforcement" bythat association. Also, the professionalbody itself must provide training for qual-ification as well as means for continu-ance of that training. The second hall-mark of a profession, according to Estey,is the public perception that a memberof the profession applies special skills .The last, and most important attributeof a profession, in Estey's estimation, isthe commitment by each and every mem-ber of that profession to society's inter-est, "to humanitarian and other altruis-tic goals" beyond the professional's ownfinancial and personal interests. JusticeEstey related that, as of 1900, only 4 .6%of the North American labor force weremembers of a professional body. "By 1971,the figure had risen to 12 .7%, and it isnow probably much higher," he said .

"The actuary perhaps would never havecome about as a profession except for theadvent of man developing his 'squirrelinstinct' of storing something for thecold winter. Insurance was the first rocketthrust that the actuary had into hisprofessional orbit," said Estey, "then camepensions and health benefits and nowthe greatest bonanza of all-humanrights legislation-and the invasion ofcommerce by the actuary in the assess-ment of risks outside life and death . . . ."

Former ChiefJustice Willard Z. Estey, key-note speaker.

Judge Meets ActuaryEstey's first personal encounter with theactuarial profession was when he wasexamining an actuary on the witnessstand "to prove longevity or lack of it byreason of the intervention of the plaintiffwith [an] automobile ." He reflected that"the actuary then was a solo flying bird .Now when I see them in action at thelegislative assembly, I realize they've takenon the characteristics of a Canada goose-and they all fly now in formation!

"And you see quite an advent of theactuary in the assessment of the impactof proposed social legislation . That, inmy observation, is going to be the nextbonanza of the actuarial profession . Andyour problem will continue to be an un-dersupply of trained actuarial talent ."

The Actuarial Update

Referring to his involvement in thejudicial inquiry into the two failed banks,Estey mentioned coming upon the actu-ary in the actuary's new role-that ofattempting to evaluate, for the regulator,both sides of the balance sheet. Actuar-ies "were not called in soon enough inthe banks I had occasion to look at," hesaid. "One can easily read into the futurethat, in modem banking, the actuarywill not be far away when the auditor sitsdown to examine the financial statementsas prepared by management before pre-sentation to the stockholder."

Risks Associatedwith ProfessionalismEstey suggested that there are "hazards"for any profession as it begins to enjoygreater public recognition . And the eas-iest way to assess a profession's expo-sure to challenges is to analyze the inter-play between that profession and the lawof the land. Estey said. The actuary is arelative neophyte with respect to the le-gal system-unlike the physician, law-yer, and accountant who are sued sooften that they "have a great war chestbuilt up to (a) defend themselves, and (b)pay when they lose, which is more fre-quent than not," remarked Estey.As the actuary moves away from the

employer-employee relationship into con-sulting, he or she is increasingly prey toconflict of interest, Estey emphasized .For example, in Estey's view there is aconflict of interest for the actuary intelling management whether or not thereis a pension or benefit-fund surplus inactuarial terms and, if there is such asurplus, who owns It and what use itmay be put to.Negligence is the second concern in

any debate over legal liability, said Estey.He said that there is a "wholly new con-cept in legal liability thought," whichsays that a professional issuing a certif-icate stating an opinion, especially anopinion that might affect not only theclient's resources but other people's aswell, should include an assessment ofwhat the consequence of reliance on thecertificate would be if the certificate werewrong. Estey admitted that this secondliability would have no real bound exceptthose of the fundamental relationshipbetween client and consultant or "dutyof care," the physical form of that pro-nouncement, and any evidence ofnegligence .

Estey spoke at some length about theactuary's responsibilities as an expertwitness-the key one being the "exclu-

August 1989

sive privilege" to answer the questionsaskedbycounsel in an unbiased, thought-ful manner. Estey said that actuarieswho serve as expert witnesses (and who,unlike ordinary witnesses-observers offact and event-actually "give opinion asto how facts should be analyzed andwhat scientific principles the court mustrealize and appreciate to access the evi-dence") should carefully prepare theirtestimony and "should not get into thatcourtroom theater unless (they are( fa-miliar with the process of cross-examination."

The profession's interplay with "thelaw of the land," as Justice Estey put it,is not exclusively in the areas of profes-sional liability and providing expert opin-ion. Estey emphasized that "nothing isabove the law," not even actuarial judg-ment. He referred to the the Manhartopinion and the actuarial tenet that thereshould be a differential in insurance pre-miums or pensions to reflect the factthat women, on average, live longer thanmen and therefore stake greater claim,as a group, on a given pension fund .Estey said that social policy dictates thatwhether or not women live longer thanmen, they cannot be discriminatedagainst and that "everyone . . . is equalin the eyes of a pension plan."

Public Interest ParamountIn conclusion, Estey clarified that al-though he did not anticipate an actualsurge in the number of suits broughtagainst actuaries in the immediate fu-ture, he pointed out that the judicialsystem is suffering from a new version ofMurphy's law-"That any claim thatmight possibly be advanced will be ad-vanced," He mused, "Probably for self-protection, the actuary will have to havethe shield or shroud or shell of a statute-based authority before too long," whetherthat jurisdiction is conferred nationallyas it is in Canada, or locally.

Once again, "the highest, first, last,and always the paramount considerationin a profession is the public interestcomponent over and above self-interest .The promotion of the public interestthrough one's profession is not an over-night task . It must be a long-standing,deeply embedded, operating principle of

S this and any other profession . I am surethe actuary, more than any other profes-sional, realizes the need for the long-term view and the need for the preserva-tion of this first, last, and foremostprofessional characteristic," Esteyconcluded. A

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Come to the Annual Meeting , October 15-18This year, the Academy's annual meeting is to be held in conjunction with thatof the Conference of Actuaries in Public Practice (CAPP), and it is scheduled forOctober 15-18, at the Homestead in Hot Springs, Virginia. Registration mate-rials will be sent to you upon request . Simply call the CAPP offices : (312)706-3535 .

The theme of the 1989 joint meeting is "Preparing for the 21st Century: TheExpanding Role of the Consulting Actuary." The keynote address will focus on thistopic, as will follow-up sessions covering the Impact of demographics and othertrends on actuarial disciplines . Attendees also will be informed of the latestregulatory and legislative developments of concern to consulting actuaries .

A total of forty-seven concurrent sessions will be offered on topics rangingfrom "Effect of the 1988 Tax Reform Act on Life Products" to "Mergers andAcquisitions."

The meeting is designed so that enrolled actuaries will be able to get all tencontinuing education credits needed to maintain their enrollment for thecurrent cycle. The meeting sessions should provide twelve core and twelvenon-core credits, although the maximum number of credits that can be earnedat this meeting is twelve .The Homestead is nestled high in Virginia's Allegheny Mountains and is

touted as a first-class resort . Set on 15,000 acres of rolling hills and woodlandlaced with streams, the Homestead offers everything from PGA-rated golfcourses, tennis courts, riding traits . and indoor and outdoor swimming, to aEuropean-type spa and exercise room. You might be wondering how all thoseeducational sessions are going to fit in!

OPENING SESSION(continuedfrorn page I)

Author of Our YesterdaysHonored

One of these venerables. Ernest J. "Jack"Moorhead, and Iris, his wife, were askedto come forward by Dwight Bartlett, pastpresident of the SOA . Mr. Bartlett pre-sented Jack Moorhead with a leather-bound copy of Moorhead's newly pub-lished history, Our Yesterdays, and acommemorative plaque signed by the pres-idents of the five actuarial organizations .

"I think it is a good book, and I don'tby any means take credit for it all," saidMoorhead. "In fact, I'm prepared to blameevery one of the residual errors on thepeople who worked with me," he teas-ingly remarked. Addressing the audience,he said, "As for you, I hope that there area number amongyou who recognizeyour-selves in the dedication of the book,which reads'to actuaries of all lands whohave struggled mightily to create andmaintain a profession worthy of publictrust : "

Our Yesterdays : the History of the Actu-arial Profession in North America, 1809-1979 can be ordered by sending $60

(price includes postage) to Society ofActuaries, PO. Box 95668, Chicago, IL60694. Please note that for overseasorders there is a 50% surcharge .

Jack and Iris Moorhead receive tokens ofgratitude for our Yesterdays from DwightBartlett.

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The Challenge from Withinby Dana Murphy

Perhaps more than any other, the ses-sion titled "The Challenge from Within"afforded centennial celebration attend-ees an opportunity to measure the dis-tance they had come in the first 100years of the actuarial profession . AsJames Hickman, dean of the School ofBusiness at the University of Wisconsindeclared , "We are here to celebrate a birth-day," and to celebrate the foundations ofthe profession as well .

Key Ideas to ProfessHickman observed that the word "pro-fession" has the same root as the word"profess. " A profession is founded on aset of ideas, which members of the pro-fession have to transmit, reinforce, andexpand upon, if the profession is to flour-ish. "The central proposition of today'ssession is that the challenge from within,the challenge to the heart and soul," hedeclared , "is the challenge to create newideas and to develop the organizationand the people that will carry on thatgreat function."One such key idea, risk theory, was

explored by Hans Buhlmann, honorarypresident of the Association of SwissActuaries. As the core of the actuarialprofession is its ideas and paradigms,said Buhlmann, "mathematics is bestsuited for expressing these ideas ." But,Buhlmann added (quoting Goethe),"Mathematicians are like Frenchmen.They translate everything into their lan-guage, and then it sounds beautiful-only nobody understands it any more ."Nevertheless, for "whoever wants to ex-perience how the basic ideas can bemore precise, the price to be paid is thatthe language must become more techni-cal ."

Actuarial science, said Buhlmann, iscentered around two basic ideas: riskand uncertainty. If one die is rolled, noone knows which side will come up ; thisphenomenon is described by probabili-ties. If the probabilities are unknown(the die may be loaded, for example), oneis also faced with uncertainty.

Our Ideas' Historical AscentDuring its history, actuarial science hasbeen characterized by the constructionof models, like Halley's seventeenth-century table of mortality for the city ofBreslau. Such classical models are still

the most common type, but, Buhlmannnoted, in them "there is no room foruncertainty or risk . The whole theoryrelies on the underlying assumption thatthe law of large numbers is working." Itdoes not address the issue of deviationsfrom this law.

Historically, individual risk theory rep-resented the first attempt to recognizethe existence of risk . "Qx now becomes aprobability, and is no longer just a rateby which the living people are diminish-ing," noted Buhlmann. But it was in1909, at the International Congress ofActuaries, that the most powerful ad-vance In risk theory was announced. Putforth was the concept that risk was builtnot only upon individual lives, or theindividual policy, but upon class experi-ence as well. Upon this notion, collectiverisk theory was founded. This idea openeda pathway for the application of the the-ory of stochastic processes .

"With the advent of collective risk the-ory," said Buhlmann, actuaries got, forthe first time, instruments to predictand control surplus-one for the shortterm, and one for the long term. None-theless, problems created by uncertaintypersisted ; these were tackled in turn bylater actuaries, who came to realize that"If you want to control risk, you have todo the underwriting properly. Ifyou wantto control uncertainty as well, you needadditional tools : experience rating and

The Actuarial Update

credibility theory" Buhlmann judges thelatter as "the most prominent contribu-tionAmerican actuarial science has givento the whole world of actuarial science ."

Puzzlingly, though, another actuarialvariable, i (interest rate) is pretty muchhandled as it was in the seventeenthcentury. "We all know the model is wrong,"said Buhlmann, "so we correct the modelin practice by rules of participating poli-cies or by profit-sharing arrangements ."But, he queried, "Aren't these correctivemeasures not a kind of actuarial mayon-naise under which we hide the mistakesof our professional kitchen?"Why do we use such crude mecha-

nisms for financial risk? The answer,Buhlmann observed, is related in part tothe mathematical treatment, which isvery difficult . Second, errors in the modelare very costly: "There is no law of largenumbers on the financial side."But newerwork has vitiated these excuses-Thereare now tools "by which you can elimi-nate financial insecurity."Buhlmann concluded with an attempt

to summarize the history of the profes-sion: "In the seventeenth century, theprofession originated with the model asdeveloped by Halley, by his table of mor-tality. The actuaries of this era are theclassical actuaries." Then, some time inthis century, the first miracle of the ac-tuarial profession occurred, when actu-aries learned how to control uncertaintyon the risk side . From this effort, theactuaries of the second era arose. Mostrecently, advances on the financial sidethat provide completely new tools to beincorporated into our profession will in-augurate a "third era for our profession ."

Smiles from the front row. Current presidents Jim MacGinnitie (AAA), Peter Hirst (CIA), andKevin Ryan (CAS) .

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August 1989

Lest We Get Too SeriousProviding a rather humorous typology

I for the actuarial profession was JackMoorhead, the author of the profession'sdefinitive history, Our Yesterdays . Moor-head observed that there are two generalclassifications of actuaries "phlegmaticand debonair," saying that he had posi-tively identified only one debonair actu-ary at the centennial . He quipped, don'tlook to see if this actuary is sitting nextto you ; "a characteristic of debonair ac-tuaries is that they never attend generalsessions," On a more serious note, Moor-head asked, "Can you not put more of us[retired actuaries] to work for the good ofthe profession? We have an asset thatmost of you lack time ."

Ferreting Out New IdeasJames Tilley, managing director, MorganStanley & Co . . provided a synopsis of hisessay on mathematical ideas . One chal-lenge for the profession, he observed, "isto step away from the traditional chan-nels of actuarial thought, and to searchfor the common elements of actuarialmodels." " If we discover these, he said,

Ithen we can decide how our future mayevolve. One step in this process must bethe expansion of actuarial models to in-clude more non-actuarial elements, ifactuaries are to tackle social problemssuch as providing health care to AIDSvictims and people of all ages and pro-tecting retirement benefits against infla-tion .In the past, actuaries have probably

been guilty of thinking too narrowly. Forinstance, it may be useful in this regard,said Tilley, to adopt a more systems-oriented approach. "Many, if not all, ofour actuarial ideas," noted Tilley, "reallyare expressions of the dynamics-thetime evolution-of systems and are em-bodied in equations of motion ." These,he said, "are one of the unifying themesthat unite the work of actuaries acrosstheir various specialties ." When actuar-ial problems are formulated in a systemsframework, and their dynamics canthereby begin to be understood, pro-grams for optimal control can be de-vised ."Meeting the scientific challenge forur profession from within," he con-~

cluded, "may actually lie from without . Ihave no doubt that a successful futurefor actuarial science depends on borrow-ing concepts and mathematics from otherdisciplines." A

7

The Challenge from Without

Panelists consider the profession's "challengefrom without,"

by Jeanne Casey

. . . Praise without endjor the go-ahead zeal.Of whoever it was invented the wheel ;But never a wordjor the poor soul's sakeThat thought ahead, and invented thebrake.

Howard Nemerov

"Actuaries function primarily as design-ers and operators of control mechanisms,whether these are for controlling theadequacy of pension funding, the pric-ing of insurance products, or the match-ing of assets and liabilities :' remarkedsession moderator, Ardian Gill. "We don'tget much praise for that," he observed,"instead we are often accused of step-ping on the brake .

Four panelists, three of them actuar-ies, were assembled to discuss the chal-lenges to the profession from without,that is, from the publics actuaries areaccountable to: their employers, govern-ment regulators, insureds, and society.Walter Gerken, retired executive commit-tee chairman, Pacific Mutual Life Insur-ance, (and the only non-actuary in thegroup), began by outlining three factorsinfluencing employers, which in turndetermine what employers expect of ac-tuaries .

vies are getting filthy rich" and Califor-nia voters "don't understand the costsrequired for the kind of premiums putout there. It's up to the actuaries to statein clear terms what is involved," Gerkenemphasized. He added that, in the healtharea, as federally mandated insuranceprograms grow, "the likelihood is thatemployers will expect their actuaries todesign government programs that makesense in the social context and that alsoprovide a role for private carriers ."Third, actuaries should gain more

knowledge of how products are sold, andeven spend some time in the marketingdepartment, Gerken advised . He urgedactuaries first to get a good liberal artseducation and then to do graduate workin business administration, adding that"the combination of an actuarial degree[the FSA or FCAS] with the broadening ofan MBA is a good combination ." He con-cluded: in short, "Employers are lookingfor broad-gauged actuaries with the com-munication skills of Ronald Reagan,"

Carlton Honebein, president, AVCO In-surance, related what he thought wasthe actuaries' overriding challenge fromemployers : "Actuaries have to help thecompanies make a profit consistentlyover time and [to] accurately estimate theliabilities that go on the balance sheet."

Employers ' DemandsFirst, with the trend toward internation-alization of companies, employers willexpect actuaries to have knowledge ofinternational markets and even foreignlanguages, said Gerken. Second, employ-ers are facing public initiatives like Prop-osition 103 in California . The public inCalifornia thinks "the insurance compa-

Insureds ' InterestsNext he considered a challenge posed byinsureds-product affordability-and ad-vised actuaries to avoid "paradigm traps,"such as the presumption that prices haveto go higher to meet rising costs. Hesuggested that actuaries have relied toomuch on historical data to make future

fconttnued on overleaf)

8

projections. Changing demographics arelikely to make this "looking out the backwindow ratemaking process" suspect. Analternative would be to determine firstwhat the buyer can afford and subse-quently to arrive at a price, said Hone-bein. He urged insurance companies tobecome more aggressive in controllingthe costs of their products . "We have toget in there and control what hospitals(and] medical doctors are charging thecustomer that we are actually paying thecosts for," said Honebein .

Government's ImperativesRobert Hammond, deputy superinten-dent of insurance and pensions for theCanadian Insurance Department, notedthat two years ago the Canadian govern-ment passed legislation requiring thechief actuary at the department to per-form actuarial valuations of the Cana-dian social security system and nationalpension plans, and to send these reportsdirectly to members of Parliament. Headded that, since 1987, all property andcasualty companies have had to file ac-tuarial reports on the adequacy of claimsreserves and liability for unearned pre-miums.

Hammond said "parallel action" is tak-ing place in the United States . As bothcountries tackle deficit problems, morethorough cost analyses of pension andother insurance plans will be required ."The challenge will be for actuaries toconvince government that they can pro-duce credible results and justify them,"said Hammond. "Government will not besatisfied by a wide range of answers," heasserted.

The cost of "safety nets" to cushion thepublic against the failures of financialinstitutions has led regulators "to agreethat one of the key elements is soundand strong audit and actuarial func-tions," Hammond added. He said thatgovernment will expect actuaries carry-ing out these activities to put the publicinterest first and to resolve conflicts infavor of policyholders. And consumersthemselves will expect actuaries to seethat products are priced adequately toensure various products' availabilitythroughout an insurance cycle .Addressing the challenge from govern-

ment, James Anderson, vice presidentand director, Tillinghastllbwers Perrin,asserted that insurance and other fidu-ciaries "prosper best in an environmentof benign regulation rather than an un-regulated one." Insurers in the UnitedStates have long respected and even en-vied the regulatory climate in Canada,

The Actuarial Update

Academy Hires Director of Government Information

Gary Hendricks, formerly chief economist with thePension and Welfare Benefits Administration, U .S .Department of Labor, has joined the Academy staffas director of goverment information and chiefeconomist, a newly created position . Hendrickswas one of the speakers to address Academy mem-bers at this year's Washington Luncheon Briefing .(See May 1989 Update) . On that occasion, heurged actuaries to meet with policymakers in per-son: "you are an informational constituency," hesaid. In his new post at the Academy, Hendrickswill be in a position to effect an increased exchangebetween actuaries and policymakers .

Anderson noted. "The recent consolida-tion of the regulation of financial insti-tutions into a single department is arational response to the consolidationalready evident among financial institu-tions in Canada and elsewhere," he said .However, some of the current insurance-related proposals in Canada "have ex-tended well beyond the threshold of be-nevolent regulation," and would virtuallygive regulators the prerogatives of man-agers, according to Anderson. Andersonemphasized, "Management must havethe right to make mistakes . Consumersmust have the right to take risks ."

Society's MandateWith respect to society's challenge to theactuary, Anderson reflected that "thosewho know us have come to expect fromus an emphasis on duty toward truth,"and in his opinion, "commercializationhas weakened our stature in this re-gard." The opportunity exists to bendour views to suit the interests of ourparticular constituency, and this ten-dency can be seen in some of our workrelated to the valuation of insurance com-panies for sale or purchase, product pric-ing, the valuation of liabilities, and thefunding of pension plans, said Ander-son. He warned against any compromiseof truth, saying, "Each profession has itsown professional soul-ours is the dutytowards truth ."

In the area of professional competence,society gives the actuary high marks,said Anderson. Although our qualifica-tion standards are rigorous, said Ander-son, "actuaries in the U.S. suffer by com-parison to those elsewhere, since theprofession here is fragmented amongseveral professional organizations withno common or even comparable stan-dards for membership."

Anderson related how this fragmenta-tion of the profession among variousorganizations only compounds the iden-tification problem that actuaries faceworldwide. "If any profession is to receivelasting recognition and respect," saidAnderson, "society must know generallywhat it does and who its members are .What we do is not widely known," andthat problem is exacerbated when thereare a number of professional organiza-tions, "each of which qualifies its ownmembers and even competes with theothers for relative status and recogni-tion," he said ."We, the members of a small and ob-

scure profession, whose members never-theless have achieved notable success,must demand that our leadership takethe steps necessary[ for] more widespreadrecognition and respect. And when ourleadership responds to this demand, wemust be prepared to follow no matterhow unpopular those steps may be," heconcluded .

Society is going to continue to expectmuch from actuaries, according toGerken. He underscored keynote speakerJustice Estey's point that the public'sinterest must be the paramount concernof a professional. Today, society facesconcerns as diverse as the issue of pro-viding affordable health insurance to the37 million in the United States withoutit, financing Social Security, securingthe solvency of major financial institu-tions, and protecting the environment ."Actuaries should help define the magni-tude of these costs," in terms of returnon investment, said Gerken .

Jeanne Casey has been managingeditor of The Update since January.

August 1989

The Challenge fromthe Leadershipby Gary Simms

"Do more , do it more professionally,and do it more publicly," was the three-fold challenge that the profession' s lead-ership, the five current presidents ofthe North American actuarial organiza-tions, communicated to actuaries at-tending the centennial, Their challengewas conveyed via prepared speechesanda subsequent panel discussion mod-erated byRobin Leckie, himself a formerpresident of both the Society of Actuar-ies (SOA) and the Canadian Institute ofActuaries (CIA) .

Presidents' VantageEach president, in turn, provided a briefhistory of the organization he represents .Kevin Ryan, president of the CasualtyActuarial Society (CAS), commented thatit was the 75th anniversary of the CAS,reflecting on its growth from an organi-zation largely devoted to workers' com-pensation issues to one with a "centralmission to develop principles in an everexpanding field ." " He stated that the CASwill "continue to respond to actuaries'educational and testing needs" and thatin future, the CAS "will be larger and willplay a larger role in many areas ."

Ian Rolland. SOApresident, portrayedthe SOAs mission as "education, re-search, and member service ." The SOA,which celebrates its 40th anniversarythis year, must help the profession tobe "relevant to societal needs," accord-ing to Rolland . Therefore, the examina-tion and education system must adaptto current and future circumstances,and "provide appropriate numbers ofpractitioners to meet the public need,"he said. Rolland reviewed the results ofa recent survey and stated that SOA-members are generally content withtheir current circumstances, and con-fident of their futures ." He concludedby observing that the structure of theprofession "will continue to be an issueuntil we are able to effectively deal withour publics and with society ."

David Hewitt, president of the Confer-ence ofActuaries in Public Practice (CAPP)stated that "practical applications of ac-tuarial science" are the hallmarks ofCAPPefforts. He reviewed the contributions ofmany individual members during CAPP'shistory, and stated that the diversity ofits membership _is a source of strength .

Noting that CAPP enjoys the smallestmembership of the actuarial organiza-tions, Hewitt stated that "we cherish theintimacy" that the present size provides .

Reacting to recent proposals to uniteCAPP with the actuaries from the Amer-ican Society of Pension Actuaries (ASPA),Hewitt suggested that instead of a "com-plex joinder," CAPP would consider offer-ing membership in CAPP "on a seniorlevel" to all ASPA actuaries .The CIA president, Peter Hirst, said

that the Canadian Parliament's incorpo-ration of the CIA twenty-five years ago"has given us great strength and signif-icant responsibilities as well." Its mem-bership has almost quadrupled since1965, and with this growth there hasbeen a change in the organization's em-phasis. "Conduct now has equal if notgreater importance than competence .How we practice and how we shouldpractice" is the predominate issue, ac-cording to Hirst . As the CIA continues toponder whether the credential it bestowsis "a license to practice, an educationaldegree, or both," it will focus on thequestion of where the actuary's role asan actuarial technician and advisorceases, and where the role as a profes-sional begins.Rounding out the initial presentations

was that of W. James MacGinnitie, pres-ident of the American Academy of Actu-aries (AAA). He remarked that, whereasthe Academy's original purpose was "toembrace all existing qualified actuariesin the United States and seek accredita-tion," the Academy's "larger purpose nowincludes public interface and the formu-lation of professional practice and con-duct guides, and the discipline to en-force them ."

The Actuarial Standards Board (ASB),under "the umbrella of the Academy" (inMacGinnitie's words) is a vital additionto the profession in the United States.He challenged the profession to make"an effective contribution to public pol-icy." We need, he said, "to point out thelong-term cost consequences" of legisla-tive proposals. Meeting this challengewill, according to him, "require an in-creased level of money, manpower, andperseverance." MacGinnitie concluded byurging the profession to reverse the tideof recent industry activities, pushing riskback to those seeking to transfer the risk(in pension plans, in claims-made forms,in nonguaranteed elements) . The profes-sion should "facilitate the transfer ofrisk, not justifications to refuse it . . . Wemust deal with 'how' and not'why not ."'

9

Opinions on StrengtheningPanel moderator Robin Leckie then posedhis first discussion question : "How willthe organizations respond to the keyrecommendations [of) the joint task forceto strengthen the profession?" MacGin-nitie noted that the Academy has alreadybegun expansion of government andpublic-relations efforts . Rolland called thereport "a first and small step towardrationalizing our structure" and notedhis "personal hope" for more. "Frankly,I'm disappointed" he stated, regardingprogress to date, and promised the coop-eration of the SOA .

"I'm also somewhat disappointed," re-marked Kevin Ryan, "that the thrust ofthe report centered more on form thansubstance." The problem is not one of "toomany voices, but rather no voice at all."

Leckie then asked the panelists to pro-vide comments on the SOA report on the"Actuary of the Future ." Rolland statedthat the actuary of the future will have to"pay more attention to communicationskills" as well as "management skills ." Hesaid that the report will have an impacton "recruiting, education, and virtuallyall other areas of operations."CAS President Ryan commented on

the phenomenon of "innumeracy" andstated that "the need that drives thecommunication requirement is astound-ing." Hewitt, representing CAPP, re-marked that the "real challenge is toinvite a broad spectrum to our profes-sion, and then admit them ."

Leckie next asked how actively the pro-fession should address social issues.Kevin Ryan called such activity "danger-ous" and cautioned that "we should nottake positions on the advisability of so-cial programs." Ian Rolland argued that"we need to do much more," and statedthat "the public has little understandingof underwriting, risk classification, orclass pricing ." He urged a strong actuar-ial role in educating the public and pol-icymakers. David Hewitt advised theprofession to "illuminate social issueswith actuarial aspects" and thereby offersociety informed alternatives. Peter Hirstremarked simply, that addressing socialissues "is more than a role, [it is( aresponsibility." Jim MacGinnitle con-cluded by noting that the actuarial per-spective often brings "unwelcome news,"but that we "must find ways to dealeffectively and efficiently with the meansto satisfy the needs of society."

Gary Simms is general counselfor theAcademy.

10

The Response to the Challenges

by Jeanne Casey

This final session recapitulated and fur-ther highlighted many of the broad chal-lenges that had been considered over thecourse of the centennial meeting.Jack Byrne, chairman of Fireman's

Fund Insurance Company; Sydney Jack-son, chairman of the board of the Man-ufacturers Life Insurance Company andone of the original organizers of the Ca-nadian Institute of Actuaries ; and Rob-ert Winters, chairman and chief execu-tive officer of the Prudential InsuranceCompany of America, were, in modera-tor Tommy Bowles' words, "perched onMount Olympus," that is, prepared tooffer their individual perspectives on thechallenges besetting the profession today .

Competition andTeam Problem-SolvingThe panelists were shot questions byBowles, and in Jack Byrne's case, kiddeda good bit as well . Bob Winters respondedto the first question-how does technol-ogy and competition from other profes-sionals affect the actuary?-by notingthat "we have seen the old actuarial func-tion folded into business units designedto take organizations closer to their cus-tomers. We've seen more use of teams inboth problem solving and problem iden-tification ."Jackson concurred that the team ap-

proach to problem solving is now stan-dard, commenting on changes in thecharacter of the life insurance industry.Such a team often includes not only anactuary but also a lawyer, marketing per-son, and accountant, he said . He pointedout that the increasing pressure on prof-its In the life insurance industry is an-other dramatic change. "Competition inthe short-term products that we're offer-ing has meant that we have very thinmargins on our new products. We havebeen protected to some extent by theprofits on our old business, but now wesee replacement of our old business withfailing interest rates- that's a wholenew era for the actuary" said Jackson.

Casualty/Property in ReliefJack Byrne then was asked to comparethe actuary in the casualty/property arenato the life actuary. He picked up on Win-ters' point that actuaries in the futurewould be working on less well-structured

problems. and he made the observationthat casualty/property actuaries tend towork much more on less well-structuredproblems than do life actuaries. He alsosaid that in his opinion "young casualty/property actuaries tend to get Into themarketing and distribution and product-designside of the business muchearlier."

The fact that "the commercial liabilitybusiness for the last fifteen years has notmade . . . a decent return on owners'capital" is the overriding problem in ca-sualty/property business today, accord-ing to Byrne . "I try to think hard aboutwhether we actuaries who work in thatbusiness are part of the solution, whetherwe're part of the problem, or whetherwe're just irrelevant. And I haven't de-cided yet." remarked Byrne.

Byrne outlined his "balance-sheet ac-tuary" concept . He identified the terriblecycles that the casualty/property busi-ness goes through . His thesis being thatthe cycle largely is caused "by the factthat our balance sheets are never statedproperly."In 1981 and 1982 we were telling the

world that we had roughly $50-$55 bil-lion of policyholder surplus standing be-neath our casualty property liabilities,"he continued, "when in fact, as time nowshows, we really only had about $10billion of surplus-10 instead of 50. Andthat was because the balance sheets werenot stated correctly. Mostly, our loss re-serve was way off; our bonds were notworth what we were carrying themfor. . . ."

"I like an actuary who says this is yourbalance sheet, and five years later youlook back and say 'Yeah, he called itpretty close,"' said Byrne.

International MarketingSydney Jackson said that, in the nextten years, internationalization's impacton the insurance business in the UnitedStates would be dramatic. Until now,"the American life business has beenhighly regulated by over fifty jurisdic-tions, and it has been rather insular," hesaid. Given a big domestic market, therehas been little incentive for companies togo international . But that will change,according to Jackson, because the Amer-ican market is relatively mature, manyindustrial companies are already inter-

The Actuarial Update

national, and the European commonmarket in 1992 will offer great opportu-nities . He anticipates further "harmoni-zation of some of the regulations," as thetrend toward internationalization con-tinues .

Revamping Educationand ExamsBowles reflected that the professionalleadership was calling for a rethinking ofthe actuarial education and examina-tion system . He asked Jackson to com-ment on what education was necessaryto become the "right kind" of actuary,that is, an actuary prepared to respondto society's needs . Jackson respondedthat "there is no particular, one 'rightkind' of actuary." Effectively, the talents,training, and ambition that any individ-ual actuary exercises in meeting the needsof his or her employer all contribute tothat actuary being "the right kind ."Jack-son emphasized that the actuary "doesn'tneed to be more of a businessman than amathematician ."The actuary has to showa willingness to change, however. Notonly should he put a premium on con-tinuing education in his own discipline,but he should be willing to explore newareas, said Jackson .

Reviewing employers' expectations ofactuaries in a changing business envi-ronment, Bob Winters pointed out thatbusinesses have moved from rather es-tablished and stable structures to dy-namic ones . Winters suggested that thequalifying process for actuaries has notreckoned with that yet .

National RecognitionElusiveWinters reflected on the long-held hopeof the actuarial profession in the UnitedStates-a federal charter. The CanadianInstitute of Actuaries, and through thatorganization, the actuarial profession inCanada, has been federated by the Cana-dian Parliament for some time . Wintersexplained U .S . actuaries' difficulty in get-ting a congressional charter as result-ing, In part, from the tradition of anti-elitism in the United States . To effectivelyclaim a domain of exclusive operation, Itis incumbent upon the profession not

is

August 1989

only to clearly define what it does, butconvince a skeptical public that its mem-

rs alone can do it. But if the publiceWinks that "bookkeepers can do loss

expense reserves as well as actuaries, Ithink the U .S. tradition would [rule] thatbookkeepers ought to be allowed to do ittoo," said Winters.With respect to our garnering an ex-

clusive practice domain, Winters pointedout that "we've succeeded to some de-gree, but not in the fashion that manyhad hoped in connection with the re-sponsibilities of an enrolled actuary." Headded that he thought that the hope forsuch recognition would continue "to burnin the actuarial breast, but . . . that thehistory is rather forbidding in terms ofthe likelihood of our making significantprogress ."

A Wrenching ProposalJackson put forth the idea of the Cana-dian Institute of Actuaries separatingfrom the Society of Actuaries and offer-ing their own qualifying examinations toactuaries in Canada. He emphasized thathis proposal was his own (not necessar-ily representative of Canadian actuaries)

d that it was offered constructively, aspossible way to help the U .S. organiza-

tions present a united front as they seekfederal recognition for the profession inthe United States .

He said he thought that the CanadianInstitute of Actuaries was of a size nowthat it could write its own examinations .Bob Winters challenged whether "theproperty/casualty side is strong enoughin Canada to stand on its own feet."Jackson acknowledged "Casualty is a

problem, there are a lot of problems,"deeming his thought of separating "anemotional wrench." He continued, "I re-luctantly put it forth, but I think that if ithelps the American problem, which Ithink Is very serious, I think it should beconsidered." Bowles acknowledged thattthis was not the first flirtation with suchan idea.

Presence in Public DebatesJack Byrne then took up the question ofhow the profession could more effectivelycontribute to public policy debates . Hecommented that he didn't have much toadd to what Academy President JimMacGinnitie had said at the earlier "Chal-lenge from the Leadership" session . Aprofession of9, 000 has only 9,000votes-and "it is very hard to get the ear of thecongressman or senator unless you carrya constituency with you . Of course, ourconstituency is truth," he added .Sydney Jackson and Jack Byrne both

agreed that "it's much easier for us tospeak out as individuals than to speakout through the organization," whichalmost always involves "a watered downconsensus," according to them .

BenedictionIn conclusion . Tommy Bowles encapsu-lated the actuary's challenge-the chal-lenge of becoming a true professional ."The organizations can't do it, the lead-ers can't do it, but with courage, withdiscipline, with vision, with dedication,hard work, integrity, and by seeking thetruth . . . we will be able to realize ourprofessional careers . . . and we'll moveinto a bright future." A

Qualifications , C.E . Reports AdoptedAt a June 22 meeting, the Academy's Board of Directors adopted the finalreports of the Committee on Qualifications and the Task Force on ContinuingEducation Recognition. Copies of these reports are included in this month'sUpdate mailing .The Qualifications Committee report has two major aspects : it reformats

existing qualification standards, and it creates a new general qualificationstandard for statements of public actuarial opinion . The committee anticipatesincreases in the number and scope of qualification standards in the near future .

The report on continuing education recognition recommended that specificcontinuing education requirements be added to existing and future qualifica-tion standards. While the task force's name reflects its original purpose : tooutline terms for the recognition of continuing education, the task force and theboard have now focused attention on the need to enhance qualification stan-dards through significant continuing education requirements relating directlyto the subject matter of each qualification standard.

The policies reflected in these reports will be implemented officially onJanuary 1, 1990 . It is expected that exposure drafts of several new qualificationstandards will be released later this year .

11

Thompson Testifiesat IRS Hearing

Representing the Academy's PensionCommittee, Jack Thompson testified ata June 29 Internal Revenue Service (IRS)hearing on proposed regulations on theintegration of pension plans with SocialSecurity. Thompson told IRS and Trea-sury officials that provisions in the pro-posed rules governing PiA offset plans(plans that base their offsets on a per-centage of the Social Security PrimaryInsurance Amount) should be re-examined, since fully five out of eightintegrated plans are the PIA-offset type ."Conceptually," he said, "it is a lot morepalatable to take an existing plan designand add a couple of additional limit tests,than it is to completely throw out theapproach and start over." Thompson alsoexpressed concern that plan sponsorshave been waiting nearly a year and ahalf for integration regulations . "Plansponsors need to know all the factorsaffecting plan design in order to makedecisions appropriate for their organiza-tions," he said. 0

Call for VolunteersPlease consider volunteering toserve on one of the Academy com-mittees. Names of the committeesand their respective chairs are listedin the Yearbook. You may volunteereither by mailing in the "Commit-tee Service Request" form that wasincluded in your July Update mail-ing, or by calling the Academy of-fice. Committee chairpersons willbe told of your interest and encour-aged to contact you .

12

Limited Liabilityat Lloyd's?-Reinsurance Issuesby Dana Murphy

Although it was not the primary purposeof the centennial celebration to presentnew actuarial research, the reinsurancebreakout session featured a synopsis of amajor piece of work by James Stanard (F& G Re) and Russell John (UnderwritersReinsurance Corp .) : "Evaluating the Ef-fect of Reinsurance Contract Terms ." Thesession's moderator, Kirk Roeser, believesthat the presenters' model, which per-mits reinsurance actuaries and under-writers to assess the question of relativeprice adequacy ( Is deal A better than dealB?), will have immediate practical appli-cation. In essence, this new approachallows the summary of key information,rather than the isolation of a single "op-timal" solution .

A New ModelOther methods that are commonly usedto give actuaries some notion of the rel-ative profitability of deal A and deal B useaggregate, loss distributions. But thesemethods,, if used alone, can occasionallylead to the wrong conclusionaboutwhichdeal offers maximum profitability. InStanard and John's approach, the effi-ciency of reinsurance contract terms ismeasured by estimating the distributionof present value of cash flows and theaccompanying investment income . 'Ib ac-complish this, paid and incurred aggre-gate distributions are examined as afunction of time over the life of a con-tract . Stanard and John's method alsoexamines the sensitivity of these resultsto changes in the parameters of the un-derlying loss model .

Supervisor Sees Challenges"Reinsurance presents particular chal-lenges to the actuarial profession," notedanother presenter, Christopher Daykin,a government actuary in the United King-dom, "because it's a subject of consider-able technical difficulty, while at the sametime requiring practical solutions in anessentially practical world, where mostof those involved are not mathemati-cians and are possibly even suspicious ofwhat actuaries have to say."Reinsurance, he said, is a business

that is based on personal relationships,and traditionally it has been carried out

3 SIN~'D PAWN RQESER

Speakers at the reinsurance break -out session .

between companies that have collabo-rated for many years . But times havechanged: this old pattern has been over-thrown, to a considerable extent, bychanges in the market. Says Daykin,"There are some disturbing featuresthere, which raise major issues for theparties involved. including the actuaries ."

For Daykin himself, as a supervisor,the first issue is the security of reinsur-ers and the likelihood that the cedinginsurers will be able to recover on theircontracts, especially in the non-life arena ."Fbr the supervisor, supervising reinsur-ance is a major problem," commentedDaykin, adding that "most supervisorsaround the world seem to have dodgedthis issue, and concentrated on super-vising the direct-writing companies."Among other factors . the variety andcomplexity of the reinsurance contracts ;the difficulty of determining liabilities,which are often very long-term, variable,and uncertain : and the international na-ture of the business all make regulationof reinsurers a daunting task .

One major challenge for actuaries is todevelop ways of assessing the financialsolvency of reinsurance companies, saidDaykin, and to develop scientific meth-ods for this effort . Right now, reinsurersthemselves (in terms of their own retro-cessions) as well as direct insurers, bro-kers, and supervisors are devoting siz-able assets to this task . Perhaps, saidDaykin, companies should keep tryingto assess the amount of their reinsur-ance recoveries that are recoverable, aswell as reflect, on their balance sheet,possible unrecoverable reinsurance (inevent of insolvency, or litigation) .

Daykin also wonders about the iden-tity of the life reinsurers : "To what extentis the life reinsurer a leopard that'schanged its spots?" Each of these com-panies seems "to have moved from beinga traditional bearer of risk to being much

The Actuarial Update

HEI)'JI ~I

_ 11 :;

6UAS f 1

more of a financier, or a banker." In manyinstances, the deals are designed to helpfinance direct-writing companies withsolvency margin requirements, or to getover the initial financial impact of writ-ing new business, or to generate newcapital. "There's a clear commercial jus-tification for such contracts," said Daykin,"but once one gets in this area, oneinevitably seems to get closer and closerto a situation where these contracts aredesigned to circumvent statutory require-ments. I gather that these concerns areon this side of the Atlantic as well," hconcluded.

Lloyd's DilemmaFrancis Guaschi, with the U .K. firm Ba-con and Woodrow, spoke on new develop-ments at Lloyd's . In the past few years,the underwriters at Lloyd's finally havebroken from their tradition and havebegun to draw upon the talents of actu-aries, especially in the area of IBNR (in-curred but not reported) reserves. Actu-aries can provide Lloyd's with objectivejudgments on the adequacy of reserves,judgments that are immensely useful indealing with the "Inland Revenue" (theBritish equivalent of the IRS) .

Guaschi also reported that, during thelast year, Lloyd's underwriters have beendiscussing the idea of limited liability.Given the catastrophic nature of riskssuch as environmental pollution andlarge-scale asbestos removal, "it's quiteclear to many in the Lloyd's market thatthe day will have to come when limitedliability will have to be accepted." Butafter 300 years, the people in the Lloyd'smarket are "loath to bite that particularbullet, because it will then make thenvirtually into Insurance companies ." However, Guaschi said that he sees "no alter-native ."

Dana Murphy is the editor of Contin-gencies .

August 1989

Health Policy,end the Actuary

by Bartley L. Munson

Ninety-one actuaries can't be wrong . Atthe centennial celebration's health caresession, actuaries completing a ballot onfive resolutions strongly agreed that theprofession should be more Involved withthe policy issues relating to a subjectthat concerns vast numbers of Ameri-cans: availability of health care . Theirresounding consensus was tempered, ofcourse, with comments that the healthcare actuary should proceed with cau-tion into the arena of public debate.The panel of Howard Bolnick, presi-

dent of Celtic Life; Timothy Harrington,actuary with Blue Cross/Blue Shield ofMassachusetts ; and John Hartnedy, vicepresident and chief actuary, Golden RuleInsurance, debated five resolutions . Af-ter each resolution was debated, the au-dience cast written ballots indicating theirlevel of agreement or disagreement withthe resolution . At the end of the session,the ballots were collected and tallied .

Before attendees voted on the first res-lution, John Hartnedy and Tim Har-rington debated an issue that would po-larize both the panelists' discussion andthe audience's ballot responses : shouldsocial issues concerning access to healthcare be distinguished and kept separatefrom insurance issues or not?An estimated 37 million Americans

out of a population of about 250 mil-lion-that's 15% of all Americans-haveno health insurance, according to Hart-nedy. Resorting to Webster's, Hartnedydefined some key terms that were signif-icant to the debate . He reflected thatinsurance, as defined, had to do withinsuring against "loss," defined as "theamount of an insured's financial detri-ment due to occurrence of a stipulatedcontingent event."Hartnedy proposed that insurance's

purpose is to protect assets, and that, inthis sense, the poor do not have aninsurance problem-they have no assetsto protect.

People are in one of four positions vis-a-vis health insurance, Hartnedy reflected,They (1) have health insurance ; (2) canford it, it's available to them, but theyon't buy it ; (3) can afford it, but they

can't buy it; or (4) they can't afford it .Access to health insurance for the fourthgroup is not an insurance problem, buta social issue, if you accept Webster'sdefinition of insurance, said Hartnedy.

But "society has redefined insurance .and we have allowed society to do it," hesaid. Hartnedy resolved that actuariescould help solve the social dimension ofthe insurance problem, only in concertwith other professions .

Harrington said that he, unlike Hart-nedy, did not believe that we could sepa-rate the social issues from the insuranceissues. The public views health insuranceas a right, and the principle of equal ac-cess is increasingly emphasized in policydebates. Harrington said that what's calledfor, then, is a complete rethinking of theinsurance market . The challenge withinthe profession is to try to expand privatehealth insurance by increasing the riskpool's size, for example .

Attendees had their say too. Resolu-tion II stated : "Health actuaries musttake an active role in helping to solvethe problem of access to good healthInsurance," Eighty-one percent of theattendees agreed. Several of their open-ended comments suggested that weshould be very active in doing what wecan to help solve not only insuranceproblems, but attendant social problems,such as access to health care, as well .One respondent suggested he wouldchange his vote on resolution I from"disagree strongly" to "agree strongly," ifonly the word "care" were substituted for"insurance." Indeed, most commentsseemed to diverge around the issue ofwhether availability of health "care" andavailability of health "insurance" shouldbe addressed as two distinct problems oras one and the same . Other commentsurged health actuaries to be sure thattheir insurance product costs are realis-tic and pricing assumptions sound .Resolution 2: "Health actuaries

should play a greater role in influencingpolicymakers regarding major healthcare and health insurance policy,"brought the strongest support . Some

Health care break-out session panelists .

13

98% of the voters agreed . Their com-ments centered on the actuary's role asexpert witness . Emphasized was the im-portance of helping the public and policy-makers understand sound insurancepractices . Some said that we must esti-mate costs and design funding programsto help secure coverage for more citizens .

Resolution 3 : "Health actuaries musttake a much more active role in reduc-ing over-utilization and price increaseswhich make insurance prices almosteonfscatory." Around 76% agreed, sug-gesting we focus on product design anddevelopment. We should present facts,respondents advised . Some cautionedthat, as a profession, we should notspeak to serve the interests of either thegovernment or the insurance industry,but to objectively share information .Some suggested we should inform the

public and policymakers on the cost ofmandated benefits, over-utilization, andthe implications of cost shifting. Weshould work to help make insuranceaffordable, yet not for insurance to beseen as a resource to be used for allsolutions just because it is there .

If health actuaries are to act effectivelyon these first three resolutions, we mightneed to improve our capability to deliver .Hence the last two resolutions .Resolution 4 : "Health actuaries can

and should do something to improvetheir profession's research, which is atan unacceptably low level :'

In their discussion, the panel suggestedthat there was a wealth of relevant datato assist the actuary In making gooddecisions for health care, both in termsof national policy and private insurance .However, we meet several constraints,according to Bolnick . There are difficul-ties relating to developing meaningfulprivate-sector databases, learning to usepublic databases, and marshalling re-sources to expand research . Even so,

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Woman's Statusa Matter of Mortality,Says Actuaryby Alan Kennedy

Fbr the eons that the human race strug-gled to survive in the face of disease,external threat, and high infant mortal-ity, women had no choice but to conceiveearly and often and to devote themselvesfull-time to rearing young. Of course,women faced a particular, additional risk :death in childbirth . In pre-modem times,women's average life expectancy was onlyabout fifteen years ; men's a few yearslonger, according to Barnet Berin, man-aging director and chief actuary, WilliamM. Mercer Meidinger Hansen.

Because of their greater longevity, men"naturally" functioned as leaders . Womenbore children and reared them . Men pro-tected and hunted. And this sex-defineddivision of roles for the sake of collectivesurvival led to "the emergence of mascu-line superiority patterns in family, so-cial, and communal relations," Berin toldattendees at the centennial meeting. Andthis pattern "persisted everywhere formillions of years until recently," accord-ing to Berin, and George Stolnitz andAaron Tenebein, coauthors of the re-search paper, "Mortality Trends of Malesand Females Over the Ages ."The basis for the "numbing" estimate

that life expectancy at birth averagedonly fifteen to twenty years in ancienttimes, Berin said, was paleodemographicresearch summarized in a paper byShigekazu Hishinuma, former presidentof the Institute of Actuaries of Japan,and more recently president of the Jap-anese Institute of Gerontology. Thesestudies include skeletal, tombstone, andother archeological evidence from an-cient Greece and Rome, medieval Hun-gary, seventeenth-century London,seventeenth- and eighteenth-century Ger-many, and the modern era, when lifetables began to be compiled.

The historical estimates are admittedlysoft and include a large margin for error,Berin cautioned . But the pattern of malesliving longer than females in the pre-modern era is found in virtually all areasstudied. Men's edge in life expectancywas greatest-five to eight years more(that's 33% to 53% longer)-at the agesof greatest fertility and greatest maternalmortality.Now that the brutal conditions of the

past that affected mortality rates no longer

The Actuarial Update

pertain, at least in developed and devel-oping countries, there have been hugeand rapid increases in life expectancy-from an average life expectancy of fifteento twenty years from prehistoric timesthrough the 1700s, to thirty years by1800, and fifty years by 1900 . By 1980,the average life expectancy at birth wasseventy years and over, and the gendertrend had been reversed : women nowoutlive men-by about seven and one-half years .

EstimatedExpectation

Era of Life at Age Zero

Millions ofYears Ago 15 Years1800 301900 501980 70M, 77.5F

"One may reasonably expect that femalestruggles to achieve fully equal status,within and outside the family, are boundto be much reinforced." Berin said. "Ifmales historically could not be challengedin societies beset by population-threatening mortality, it should followthat today's radically transformed vitalrate conditions might well indicate ever-rising sociopolitical and economic po-tential for women," concluded Berin . Putanother way, low life expectancy was thereason why women infrequently becameleaders, scientists, and artists in thepast, and this reason has now been re-moved, Berin told press attending a June13 briefing in Washington, D.C .

Alan Kennedy is a technical writer forthe Actuarial Standards Board .

HEALTH POLICY(continued from page 13)Bolnick viewed research as one of thmost positive ways to influence publipolicy. The resolution to enhance researchwithin the profession was agreed to by88% of the attendees .Resolution 5: "Health actuaries

should improve their training , to helpmeet the challenges :' Ninety-two per-cent indicated agreement on the ballot.In the related debate, Harrington under-scored the usefulness of courses in med-ical terminology and health care eco-nomics for an actuary who is to designand price products dealing with healthcare providers .

In sum, this session was intended to(1) inform, (2) provoke examination ofthe health care actuary's role with re-spect to broader issues relating to healthcare, and (3) collect opinion in order toassist our profession's awakening to itsrole in health care-whatever that shouldbe. These objectives were met .

In the 100-year history of our profes-sion, as its narrative is detailed in OurYesterdays little is said about the healthactuary. The health actuary simply hasn'tbeen around that long . But with the lev~of public concern over access to healtcare today, we can say with near cer-tainty that the next 100 years are goingto be much more significant and excit-ing for the health actuary .

Bart Munson is principal with WilliamM. Mercer Meidinger Hansen, Inc. Hewas moderator for this session at thecentennial . The ballot results from thissession were released to the press at abriefing the next day.

Checklist of Academy StatementsJune 1989TO: House Subcommittee on Oversight and Investigations, June 15, 1989 .RE: Property and liability insurance. BACKGROUND: This letter commented onthe need to strengthen loss reserve certification requirements .

TO: Roxani Gillespie, Commissioner of Insurance, June 15, 1989. RE: Proposi-tion 103. BACKGROUND: This letter offered assistance in analyzing issuesrelating to Proposition 103 .

TO: Internal Revenue Service, June 29, 1989 . RE: Pension plans integrationrules. BACKGROUND: This testimony was offered at an IRS public hearing tocomment on proposed regulations relating to Social Security integration underqualified pension plans .

TO: Colorado Commissioner of Insurance, July 11, 1989 . RE: Qualifications foractuaries to sign loss reserve and health care institution financial statements .BACKGROUND: This testimony was offered for the record of a public hearing onColorado loss reserve certification requirements .

August 1989

Professional StandardsMat Home and Abroad

by Christine Nickerson

Standards of practice are an emergingforce within the actuarial profession thatwill affect the daily work of every actuaryin one way or another, according to Ron-ald Bornhuetter, chairman of the Actu-arial Standards Board (ASB). Bornhuet-ter led a panel discussion covering recentdevelopments in the standards move-ment in the United States, Canada, andthe United Kingdom .

In the United Kingdom, standards areset and maintained by the Institute ofActuaries based in London and the Fac-ulty of Actuaries based in Edinburgh,explained Roger Corley, representing theInstitute. As a result of the cooperationbetween these two actuarial bodies, thereis one set of guidance notes for all theactuaries working in the United King-dom. In the U .K., actuaries have hadsome statutory duties since late in the19th century. The earliest of these werecontained in an act of Parliament relat-ing to friendly societies under which theTreasury could appoint actuaries as pub-lic valuers. This use of actuaries for val-uation of long-term liabilities appearedin other acts of Parliament relating to lifeoffices and local government superannu-ation funds .

In the 1970s, with the Insurance Com-panies Act of 1974, the concept of theappointed actuary appeared . In fillingthis role, the actuary combined the giv-ing of advice to the life company with aduty to inform the Department of Tradeof any concern regarding the financialsoundness of the company. The poten-tial conflict in these two roles and theneed to reinforce the professional resolveof the appointed actuary was recognizedin the decision to prepare the first guid-ance note (GN 1 ) published in 1975 . Sincethen guidance has evolved, and there arenow five guidance notes relating to as-pects of life insurance, During this sameperiod, the pension system was chang-ing to allow plans to be contracted out ofthe state system. This again gave rise toa need for professional guidance and thedevelopment of several pension-relatedguidance notes. Corley described stan-ards in the United Kingdom as a devel-

oping system of guidance. An importantconcern of the Institute and Faculty is tokeep guidance as light as possible and toavoid replacing professional judgmentwith rules, he said .

The level of standards-making activityin Canada is accelerating, according toRobert Chamberlain, representing theCanadian Institute of Actuaries (CIA) .Legislation has served as an impetus fordevelopment of standards of practice .The first standard was issued in 1979and relates to financial reporting for lifeinsurance companies. Since that time,standards have been adopted dealing withpension plans valuation, employee ben-efit plans, property and casualty finan-cial reporting, dividends, deferred pen-sions, and actuarial reports andtestimony. The CIA is now undertaking acomprehensive review of all the existingstandards and the way in which stan-dards are created .Standards making in Canada involves

committees at three levels: practice com-mittees, a committee on standards ofpractice, and the Council (the electedgoverning body of the CIA) . The job of theeight practice committees is to preparethe documents that lead to the develop-ment of a standard . The Committee onStandards of Practice recommends stan-dards for adoption by the Council afterdue process . The committee is currentlyexamining how standards of practice arecreated and recommending changes inboth due process for standards, and formand content of standards . Acceptance bythe CIA Council of these recommenda-tions would result in a rewriting of cur-rent standards.Robert Chamberlain outlined some of

the problems with the current standards-setting procedure. Standards develop-ment has not been systematic, work onstandards has sometimes been under-taken by standing committees and some-times by special task forces, and theadoption procedures have varied . Thewant of a system has resulted in a lack ofcommon understanding as to the con-tent of a standard, duplication, and noproper dissemination of dissenting views .

Chamberlain also discussed the issueof discipline. He said that the CIA viewsthe link between standards and disci-pline to be compliance, and it is consid-ering setting up compliance monitoringprocedures .Acting as devil's advocate and arguing

that standards of practice are unneces-sary to the actuarial profession, FredKilbourne, a member of the ASB Spe-cialty Committee, suggested that suchstandards supplant the actuary's integ-rity and judgment by rules and regula-tions. Written standards as opposed towritten principles may be a bad ideawhether self imposed or "forced on us by

15

ASB Fact BookReleased

includedin thismailingof theActuarialUpdateis a copyof thenewlyreleasedActuarialStandardsBoardFactBook.

The fact book explains why standardsare needed, the genesis of the Actuar-ial Standards Board, the structure ofthe ASB, and why the ASB is affiliatedwith the Academy. It also describeshow standards are developed, the ex-posure process, the format of stan-dards, and the discipline process .

a man with a gun," said Kilbourne . Dis-cussing the presumed need for stan-dards in order to ensure professionaldiscipline, he suggested that the bestdiscipline may be the self-discipline im-posed by the desire to gain respect ratherthan to avoid opprobrium. Kilbournenoted that standards are supposed tooffer a safe harbor to actuaries, but sug-gested that there's no guarantee thatstandards won't prove to be "more usefulto the attacker than the attackee ." Fi-nally, he questioned whether the "stan-dardizers" might become a self-perpetuating bureaucracy finding a needfor their services in every comer of actu-arial endeavor.

John Harding described the U.S. actu-arial profession's struggle with the ideaof professional standards . It had appearedto many actuaries, said Harding, thatprofessional practice and what they per-ceived as "cookbook standards" couldnot coexist. Harding, who served as chair-man of the Standards Organizing Com-mittee that guided the creation of theASB, recounted that a number of actu-aries had questioned the need for stan-dards, expressed concern that standardswould grow increasingly restrictive, andwondered how standards would be keptcurrent. At the time, the approach to

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16

managing standards was ad hoc at best.Members of the Academy board, respon-sible for final adoption of standards ofpractice, often had no working knowl-edge of the subject matter to be promul-gated or any concern with a consistentform or tone. There was an ambiguityand overlap as to the roles of the Acad-emy and the other actuarial organiza-tions in standards-setting .

In response to this situation, the Stan-dards Implementation Committee (SIC)was formed in 1983 to address the issueof standards. The SIC was given the jobof recommending a standards manage-ment process and of informing the pro-fession about the need both for stan-dards and for a process that could managethe promulgation and modification ofstandards. The SIC recommended a struc-ture similar to the one now in place-amanaging board, and suggested an In-terim board as a precursor to the finalstructure. This would allow an opportu-nity to make certain that such an orga-nization could manage the standards-setting process .

In the fall of 1985, the forerunner oftoday's ASB, the Interim Actuarial Stan-dards Board, was setup . The IASB proveda success, and in the spring of 1988 themembership passed a bylaw amendmentthat established the ASB .

Harding reminded the group why stan-dards of practice are necessary to theactuarial profession . Standards serve toensure the public that actuaries are pro-fessionally accountable . At the same time .standards provide practicing actuarieswith a basis for assuring that their workwill conform to generally accepted actu-arial principles and practices .

It is important to assure those outsidethe profession that actuaries not follow-ing standards will be disciplined, Hard-ing noted. The Joint Task Fbrce onStrengthening the Actuarial Professionis studying this issue, he said, and hasdeveloped a set of recommendations . Har-ding told the group that "by producing agenuine standards management processin the U.S., we have made importantprogress toward building a more effec-tive profession . The added cost of timeand money are not trivial, but if we alsotake action to enforce them they willyield a substantial return to actuariesand to the publics we serve ."

Christine Nickerson is director of stan-dards administration, a liaison posi-tion between the Actuarial StandardsBoard and the Academy.

Actuarial Principles vs.the Socialization of Risk

by Dana Murphy

In the United States, there are two basicmeans by which the public is providedprotection from risk . The first is a sys-tem of private insurance, which usesrisk classification ; the second comprisesmandatory programs that socialize therisk for the entire population . The prob-lem is, the public is often unable (orunwilling) to understand the technicalreasons for the difference between thetwo systems-politics, simple emotion,and a generally evolving shift in whatconstitutes true equity in terms of insur-ance coverage have meant an ever-increasing tendency toward the social-ization of risk and the erosion of soundrisk classification principles .

The centennial celebration session todiscuss this phenomenon was to be, per-haps inevitably, an arena for hot debate.

Risk Classificationon the Line?E. James Morton, chairman and CEO ofJohn Hancock Mutual Life Insurance,related that "Many of the issues in social-ization of risk threaten our time-testedways of doing business. All of our expe-rience and our education in the busi-ness teach us the importance of properrisk classification and the importance ofsetting premiums that are consistentwith the true cost of the insurance of-fered." In general, actuaries themselvesareconvinced, headded, that "these prin-ciples serve as a pretty good mechanismfor allocating the social costs of risks,"

But the public, all too often, cannotdiscern the equity of the operative prin-ciples in risk classification . "There aregrowing pressures to adopt alternativeapproaches because, in many cases, thecost of insurance was felt to be simplytoo high for some people." Others, henoted, have complained that "insurancepricing distributed costs in a way thatwas perceived to be unfair." Finally, therehas emerged in recent years a "basicbelief in the right to protection ."• For Morton, the fact that consumerists

and politicians, searching for solutionsto drastic social problems, may be quitewrongheaded about the technically cor-rect method of computing insuranceprices is essentially beside the point :"Insurance becomes a target," In suchcircumstances, however significant these

The Actuarial Update

arguments may be, they are not respon-sive to the basic issues .

One PR ApproachSo Morton's company has gone out of itsway to "put significant resources intocomprehending those underlying issuesor perceived inequities, and to becomeinvolved in the effort to find solutions ."As an example, he cited a film on AIDS,sponsored by his company, which at-tempts "to deal with the emotion-ladentragedies of this disease in a way thatpromotes compassion and understand-ing for people with AIDS." An additionaltask mentioned concerned forging alli-ance with most of the action groupsworking on behalf of AIDS patients .

Unisex PricingMore controversial for the actuaries at-tending the session were Morton's viewson unisex pricing: "I continue to feel thatblind adherence to technical principle willnot serve our basic interests," he said ."There is an evolution of attitudes that issimply inevitable, and if we defended thestatus quo too fiercely, we would simply beleft behind." In the case of arguing againstunisexpricing, he said, : "We were, in short,facing a losing battle ." John Hancock, in •the belief that "we gain little by appearingto be on the bad side of the argument,"determined that it could "live with theresults" of unisex pricing, especially ap-plied only prospectively .

But Philip Briggs, vice-chairman of theboard, Metropolitan Life Insurance, dis-agreed: "I think that the difference be-tween male and female risks is very sub-stantial and has the potential for causingreal competitive problems, in addition tosignificant questions of equity." Yet, likeMorton, he discerns a "trend toward thethe greater socialization of risk" in muchrecent legislation ; for example, in Michi-gan's essential insurance act, which re-quires insurers to issue an auto insurancepolicy to anyone who applies . In this in-stance, the stimulus for the new law issimple-steep increases in prices. ToBriggs, it would be much preferable to"attack the underlying causes of the highcost of auto insurance in urban areas,"since "spreading the cost does not solvethe basic problem and is unfair."

Briggs believes that all too often, at-tempts to wipe away risk differentiationsvia legislative and regulatory mandateare "a bit like denying the existence ofgravity and just as likely to succeed." Heconcluded: "I don't believe that the pri-vate insurance system should be used tosolve social problems ." A