etlc~ ,uarial UpdateVOLUME 18 NUMBER 11 AMERICAN ACADEMY OF ACTUARIES NOVEMBER 1989

In

2

this issue

From the ASB

3 Centennial Portrait

3 Letter to the Editor

4 1989 Casualty Loss ReserveSeminar

6 Nonforfeiture Values ReportAvailable

6 Florida Bar Brief

7 Standards Outlook

7 Enrolled Actuaries May Optfor Inactive Status

Checklist of Academy8 Statements

September 1989

Study on Full-FundingLimitation Released

Regulators File9 Qualifications Inquiries

with Discipline Committee

Actuarial School in MexicoCity Celebrates 20th Year

An Open Letter to the10 President of the Institute

of Actuaries

EnclosuresIncluded In this month's Issue ofThe Update are the following :• Government Relations Watch*In Search Of . . .

• ASB Boxscore

sure Drafts on the Cost ofIV-Related Claims, and When

to Do Cash Flow Testing• Continuing EducationAnnouncement

Estimating the Cost of HIV :A Proposed Standard of Practiceby Harold am, r.

Actuaries who establish reserves for lifeand health Insurance financial state-ments and insurance regulators willboth benefit from the proposed stan-dard, Guidance on Estimating and Pro-vidingfor the Cost ofHlV-Related ClaimsCovered Under Life and Accident andHealth Insurance Pdictes. An exposuredraft is included in this Update mall-ing. I urge you to review the exposuredraft carefully, if it is applicable to yourpractice, and to submit comments tothe Actuarial Standards Board .The text of the exposure draft is

straightforward, but the proposed stan-dard itself would profoundly influenceactuarial practice and therefore deservesthoughtful review.

Investment ActuariesForecast VolatileMarket in 2000by George So es

Consolidation of financial institutions;a Dow Jones Industrial Average drop-ping to 2,000 and peaking as high as4,000; and the imposition of incometaxes on the healthy pension marketwere among the major predictions of-fered by a panel of actuaries and econo-mists assembled in New York, Septem-ber 13. for a Forecast 2000 symposiumon asset management and investment .

Results of a survey of 446 asset man-agement and investment actuaries,reported at the seminar by AcademyExecutive Vice President Jim Murphy,portended a bullish, yet volatile, stockmarket between now and the turn of thecentury. Ninety-four percent of respon-

(continued on page 1 1)

Need for Standard

Meager guidance has been available toactuaries estimating and providing forextra claims resulting from HIV infec-tion. Until the mid-1980s, few life andhealth insurers even were aware of thepotential impact of the HIV epidemicand AIDS on their business . Startingin1987, however, a substantial body ofinformation has been contributed toactuarial literature, which attempts toassess the financial repercussions ofthe epidemic on individual insurancecompanies .

One such report, "The Financial Im-plications of AIDS for Life Insurance

(continued on page 8)

Casualty Loss Reserve Seminar atten-dees, John Muetterties and Kevin Ryan.review their meeting programs. Heldannually, the seminarpresents sessionson a variety of topics related to loss-reserving . More than 640 actuaries andloss reserve specialists attended thisyear's September 18-19 meeting inChicago. See story on page 4.

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IMPof Actuaries

PresidentHarold J. Brownlee

President-ElectMavis A. Walters r

Vice PresidentsHarry D. GarberHarper L. Garrett, Jr.John H. HardingDaniel J. McCarthy

SecretaryVirgil D. Wagner

TreasurerThomas D . Levy

Executive Vice PresidentJames J. Murphy

Executive Office1720 1 Street, N .W. 7th FloorWashington, D.C. 20006(202) 223-8196FAX (202) 872-1948

Membership AdministrationWoodfield Corporate Center475 N. Martingale RoadSchaumburg, Illinois 60173-2226(312) 706-3513

ChairpersonCommittee on PublicationsRoland E. KingEditorCharles Barry H . WatsonExecutive EditorErich ParkerAssociate EditorWarren P. CooperManaging EditorJeanne CaseyContributing EditorGeorge SoulesProduction ManagerRenee Cox

American Academy of Actuaries1720 1 Street, N.W. 7th FloorWashington, D.C. 20006Statements of fact and opinion in this publication .including 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.

Ronald L. Bornhuetter

Standard-Bearer & Retinue

As Actuarial Standards Board (ASB)chairperson, I am pleased to report thatthe ASB is alive and well . Its "army" nowcounts almost 150 involved , dedicatedactuaries and staff. Thanks to theircombined efforts, the concept of formalactuarial standards of practice Is areality-and is moving forward at anaggressive pace .As my personal involvement is near-

ing an end, I am grateful for this oppor-tunity to pass along a few thoughtsabout the ASB and its activities.On the ASB board , there are nine of

us representing all disciplines , plus twovery capable , full-time staffers-Christine Nickerson , our director, andAlan Kennedy, our technical writer.Three board members belong to the

Casualty Actuarial Society, seven areFellows of the Society of Actuaries, andone board member belongs to bothlearned societies . Board members alsoare representative of the various prac-tice areas within our profession: twoare from the pension area, two fromcasualty, three from life . One is fromhealth , and one is a generalist. Slicedanother way, the board has five con-sultants, three from the company ranks,and one from academia . All boardmembers are dedicated to the stan-dards movement .

The board meets four times a yearfor two days, usually In St . Louis, Mis-souri. Our meeting agendas are full,because the pace at which the ASB'sseven operating committees are gener-ating standards is Increasing. Present-ing proposed standards can take con-siderable time and, once presented, theyrequire a lot of thought. The board alsois working on the ASB's infrastructure :you will see some fruits of this laborsoon, when your standards referenceguide arrives . And there are numerousother projects on the ASB's drawingboard .

With a quick glance at the "ASB BoxScore " Included with every issue of TheActuarial Update, you can find out justwhat standards are being considered .The subjects of the proposed standards

The Actuarial Update

vary, including topics such as AIDS,risk classification , expert witness testi-mony, discounting of casualty lossreserves, involuntary terminationfits, to name some of them .

In addition, a joint casualty/life tatsforce Is drafting a standard for valuingan insurance company prior to itsmerger or acquisition . The task forcehas enlisted the help of two investmentbankers-the first time the ASB hasreached out to. involve experts outsidethe profession.Although many topics never evolve

into a final standard , the ASB is com-mitted to meeting the need for stan-dards In all actuarial disciplines, in atimely manner.Certainly, the standards movement

is off-and-running and growing at avery satisfactory rate. However, in spiteof the ASB board's very substantialaccomplishments, I leave the board withsome concerns about its future . With-out discussing each of them in detail, Iwill list them .

•Compliance/Discipline. Unless theprofession is prepared to enforce prac-tice standards , the ASB Is wasting itstime .

•UttllzationofStandards . Standardsmust be responsive to the actuary'spractice needs, not limiting. We haybe sure that we can see the forest lowtrees, in establishing new standards ofpractice.

•Enthusiasrn/Inuoluement. Acertainamount of apathy toward the stan-dards movement persists within ourprofession. We must encourage moreparticipation as the standards move-ment shifts Into second gear . We alsoneed to get youngeractuaries just start-ing out involved .

*Recruiting for ASB. Continuing tofind dedicated, hard-workingASB boardmembers, committee chairpersons, andcommittee members may be difficult.

•Initiatiue in Standards-Setting. Wemust not be in the position of alwaysreacting to standards set by the ac-counting profession (the AmericanInstitute of Certified Public Account-ants and Financial Accounting Stan-dards Board) . When appropriate, weshould be the first to publish a stan-dard (e.g., the actuarial standard ofpractice for continuing care retirementcommunities).

We are off to a great start , but thereis much more to be accomplished . With-out your continuing Interest anvolvement , we may not see a retuthe tremendous investment of time andeffort we've already made . I believeactuarial standards of practice are wellworth all the effort we put into them.A

November 1989

Centennial Portrait Letter to the Editor

Haynes Miller,a6-1988

Christmas Day of last year , the profes-sion lost "one of Its most distinguishedand admired members ." At the age ofeighty-two. John Haynes Miller died athis home in South Hero, Vermont. Anweary appearing in the Transactions

Society of Actuaries relates :

Mr. Miller had a major role in organiz-ing the Academy . He liked to sayJocularly that he 'Invented the Acad-emy;' when the organizers were wres-tling with the question of just whatstructure would be best for the certif i-cation of actuaries and governmentrelations In the United States, he wasthe one who suggested the concept ofa body that would be neither subordi-nate to, nor would have any authorityover, any of the existing actuarialbodies.

A Fellow of both the Society of Actu-aries and the Casualty Actuarial Soci-

THE WIZARD OF ID

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Trust in the Treasury

Regarding Carl Strunk's letter (Sep-tember 1989 Update), and the editor'sresponse ("I tend to agree with you. . ."),do you two really think that U .S. gov-ernment bonds are not prudent invest-ments?Should the U.S. Department of Labor

and the U .S. Treasury charge "impru-dent investing" by every private pen-sion fund that holds U.S. governmentbonds? Would you tell E-Bond (orwhatever they are currently called)holders that they have invested impru-dently?

Of course the money, borrowed fromand owed to the Social Security TrustFunds, is spent by the U .S. Treasury ;isn't that what any borrower does? Iwould rather be owed money by theU.S. Treasury, and therefore by the fulltaxing power of the government and

ety, Mr . Miller was a charter vice presi-dent of the Academy in 1965, and itspresident in 1967 . In 1974 , eight yearsafter he had retired from Monarch LifeInsurance Company in Springfteld.Massachusetts . he launched the Dis-ability Newsletter to provide "interna-tional coverage of current statistics andother information bearing on disabilityinsurance and rehabilitation of thedisabled."

As historian Jack Morehead states inOur Yesterdays:

Miller, an authority in this field, quicklyestablished the corps of subscribersneeded to make this enterprise suc-cessful, and has persuaded actuariesto contribute experience data avail-

By permission ofJohnny Hart and NAS, Inc.

3

strength of the economy, than by anyother debtor.I've frequently suggested-only partly

in jestthat the Social Security TrustFunds ought to buy title to the StrategicOil Reserve and similar government-owned assets. That wouldn't changeanything as far as total governmentactivity is concerned, but it might helpthose who think the Trust Funds aren'treal.Certainly there are important con-

cerns about how the Treasury can bestuse the money to strengthen the econ-omy, but actuaries ought to help clarifythe distinction between such questionsand any misconceptions about the exis-tence ofthe Old Age, Survivors, and Dis-ability Insurance (OASDI) Trust Funds .Like any fund invested in financialassets, they really do exist .

Howard YoungLivonia, Michigan

able nowhere else. His essays haveprovided historical as well as currentinformation, and he has never hesi-tated to criticize practices that he con-sidered inappropriate or unsound. ANin all, the Disability Newsletter hasbeen educational and an influence forthe good.

The Disability Newsletter has beenrevived recently by two consultants atMilliman & Robertson, Inc. The firstissue is due out this month and isdedicated to John Haynes Miller. Forsubscriptions, contact Bill Bluhm orDave Scarlett at the Minneapolis officeof Milliman & Robertson ; (612) 897-5300 .

by Brant parker and Johnny hart

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1989 Casualty Loss Reserve Seminar

More than 600 actuaries and loss re-serve specialists attended the 1989Casualty Loss Reserve Seminar, Sep-tember 18-9, at the Hyatt RegencyO'Hare Hotel, Chicago. Sponsored bythe Academy and the Casualty Actuar-ial Society, the seminarofferedforty ivesessions tailored to the continuing edu-cation needs ofattendees . as well as astimulating luncheon address.

Fireman's Fund CEO TellsWhy Underwriting CycleHurts P&C Industry

Offering "strong medicine" for a peren-nially unstable property -casualty in-surance underwriting cycle. John J.(Jack) Byrne , chairman , chief executive

officer , and president ofFireman's FundInsuranceCompany, urged loss reserveactuaries "to bring discipline to theirbalance sheets." Byrne was the lunch-eon speaker at the 1989 Casualty LossReserve Seminar, September 18 .

"This casualty property cycle reallydoes ruin what ought to be a very goodbusiness," said Byrne, adding that "thenation deserves more stability than whatwe have been able to provide." Theswingshave damaged the insurance In-dustry's credibility with consumers, aswell as causing problems for manage-ment and agents. Byrne charged thatthe major culprit Is "too much reportedcapital sloshing around ."

Byrne alleged that in 1982, at a timewhen the industrywas "telling the world

The Actuarial Update

that we were supporting their needs,"overreporting of capital caused byundisciplined balance sheets resultedin a $10 billion shortfall that hellpbring about the insurance Indust"crisis" In 1983. Since then the indus-try has "come roaring back," pumpingin $40 billion into the property/casu-alty business, he noted .Even so, an Insurance Services Office

(ISO) report indicates that current lossreserves are generally 12%-13% "light,"said Byrne, and that allocated lossadjustment reserves are 50% "light."He exhorted the assembled actuaries to"mark bonds to market right now," andto "get our reserves right ."Byrne recommended that statutory

blanks going to insurance commission-ers be signed by a qualified casualtyactuary and that the profession take ona role in enforcing discipline within theproperty/casualty industry. He alsosuggested that informal hearings couldbe held by the Actuarial StandardsBoard to determine, when necessary,the appropriateness of loss reserve cer-tifications .Byrne asked that state insurance

regulators "take the balance sheet moreseriously," and he encouraged thetablishment of a "central office" forNational Association oflnsurance Com-missioners . "We might lose state regu-lation ofthe solvency of property/casu-alty companies unless we do some-thing," Byrnewarned, adding that fund-ing for such an office could come fromthe private sector.

Studies Reveal Effect of TortReform Measures

Enacted tort reform statutes have hada limited effect on reducing claim costs,and government entities have been seenas "deep pockets" more likely to paytheir "fair share" in multi-defendantcases, according to separate studiessponsored by the Insurance ServicesOffice (ISO) . These findings were re-ported by Philip D . Miller, senior vicepresident and actuary, ISO, speakingon "Tort Reform" at the 1989 CasualtyLoss Reserve Seminar .The Claim Evaluation Project, an in-

dependently conducted study of six typi-cal claim situations, found that "in minstances the qualifications and existions in many of the enacted tort reformstatutes substantially limited their In-tended effect of reducing insuranceclaim costs." However, the study also

November 1989

noted that a three-point program toabolish the rule of joint and severalliability, relax the collateral source rule,

place a cap of $250,000 on non-nomic damages `would produce sig-

nificant cost reductions in virtually allof the claim situations tested ."

The second study, the Claim File DataAnalysis, culled Information from over13,000 commercial bodily injury claimfiles, analyzing large claims, both openand closed, claims of all sizes closed asofAugust 1987, and government entityclaims of under $25,000 from policyyear 1983 .

In the instance of municipal liabilityclaims, the insured's percentage of set-tlement exceeded its percentage of fault46% of the time, compared with 36% forgeneral liability multi-defendant cases .Litigation occurred more frequently ingovernment cases, with lawsuits filed in75% of the small government claimsand in 88% of the large governmentalclaims, in contrast to only 32% of theclaims In the general claim population.Average compensation in governmentalclaims was also higher than for fault-adjusted economic loss for the generalclaims population.

other finding, said Miller, was thetively small number" of large claims

responsible for the vast majority of totalliability insurance compensation. Infact, fewer than 3% of the claims wereresponsible for 54% of total compensa-tion. "While some critics have dis-counted the effect of recent tort lawtrends as only affecting large claims,"Miller said, "the findings suggested that

tort reforms targeting high value casescan indeed make a difference .-Miller said the ISO Data Analysis

study would be valuable to insuranceregulators, legislators, and other par-ties debating the merits of tort reform,but that there were certain limitationsIn the claim studies, including the factthat information is often only availablewhen a case actually goes to verdict-about 2% of the time .

While it is clear that tort reform willhave an effect on future liability insur-ance costs , since tort reforms were notenacted until 1986, "you will generallyhave no frame of reference for predict-ing the effects of such reforms," saidMiller. However, he added, "it shouldbe clear that you do not necessarily

5

need brand-new reserving methods fordealing with tort reform ."

New Focus forEnvironmentalImpairment Liability

Superfund cleanup problems will soontake a back seat to indoor air, acid rain,and ozone-related environmental haz-ards, creating a "tremendous riskmanagement problem" for pollutionliability insurers, according to WilliamP. Gulledge, vice president, Front RoyalGroup, speaking at a panel discussionon "Loss Reserves for EnvironmentalImpairment Liability"at the 1989Casu-alty Loss Reserve Seminar. Gulledgewas joined by Thomas J. Coyle, vicepresident underwriting, EPIC Insur-ance Company, and Roger M. Hayne,consulting actuary, Milliman &Robertson, Inc .

Pollution liability insurance is cur-rently a "government-driven market,"Coyle remarked, with few companiesnowbuying policies on avoluntarybasls .For example, the Environmental Pro-tection Agency has mandated that allhazardous waste treatment, storage, ordisposal facilities must have third-partyliability insurance for sudden and acci-dental occurrences . Unfortunately,some 25% of service station ownersaffected by this regulation, with regardto underground storage tanks, will beunable to afford coverage . This will "putheat on the politicians" to come up witha solution, said Coyle. He added that,in general , "it €s just not possible" for in-surers to "mediate cleanups to a pris-

(continued on pane 12)

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Nonforfeiture ValuesReport Availableby Walter N. Miller

How do the concepts of equity and sol-vency relate to nonforfeiture values inlight of current and anticipated condi-tions? Since its formation in the springof 1987, the Task Force on Nonforfei-ture Values has been examining thisbroad and tangled area of practice . Itsfinal report has just been completed ; anexecutive summary appears below.

Copies of the full report are availablefrom the Academy's Washington office .The task force is interested in yourcomments ; please send them to eitherWalter N. Miller or Douglas C . Doll attheir Academy Yearbook addresses .

Executive Summary

1 . Premise : Nonforfeiture ValuesWill Be Mandated . Regulations thathave mandated nonforfelture valueson life insurance date back to 1861 inthe United States and have been re-quired in all states since the 1940s .Given the historical and regulatorycontext of the insurance industry inthe United States, we assumed thatnonforfelture benefits would continueto be mandated . We believe that it isimportant to have the same generalmethodology apply to all types of lifeinsurance contracts.

2. Paid-Up Insurance Is a Benefitthat Satisfies Nonforfeiture Equity.Policies should provide paid-up in-surance nonforfeiture benefits, sub-ject to minimum standards, butshould not be required to providecash surrender benefits. Requiringminimum Insurance benefits meetsconcerns regarding adequate policy-holder equity.

3. The Asset Share Is an Appro-priate Value on which to Base Mini-mum Nonforfeiture Benefits. Weconcur with the 1941 National Asso-ciation of Insurance Commissioners(NAIL) Committee and the 1975 Un-ruh Committee . Asset shares are thebest measure of equity defined asfollows: `a terminating policyholdershould not leave the continuing poli-cyholder in a worse position for hishaving been there ." The asset sharevalue is defined retrospectively as thenet assets accumulated by the com-pany under the policy, less a risk and

profit charge. The asset share valueis recommended as the benchmarkfor testing minimum nonforfelturevalue methods .

4. The Methodology in the Cur-rent Standard Nonforfeiture Law(SNFL) Still Works and Can Con-tinue to Be the Basis for MinimumNorforfeiture Benefits . The SNFLcalculates policy values by providinga means of grading between initialvalues and maturity values . Thismethod works adequately for fixedpremium products. Flexible premiumcontracts, such as universal life, arenot directly defined by this processbecause the maturity value is not de-fined. We propose a method thatwould adapt the SNFL for universallife by defining a maturity value .

5. A Retrospective MethodologyWas Explored, but Is Not Endorsed.In order to provide meaningful mini-mum values, such a methodologywould require control of all elementsof the retrospective accumulation,which would have the effect of placinga maximum on gross premiums for agiven benefit. Explicit rate regulationhistorically has not been imposed onindividual life insurance and wouldpreclude certain policy designs thatmay provide benefits to policyhold-ers. We therefore do not endorse thismethodology.

6. Cash Values , If Provided,Should Have Minimum StandardsLinked to Paid-Up Values. Mini-mum Values Should Equal 90% ofPresent Value of Paid -Ups. The in-creased volatility of interest rates inrecentyears means thatcash surren-ders-which occur disproportionatelyIn times of high interest rates-pro-duce an additional cost. We con-cluded that issuers should be able torecognize this cost equitably by speci-fying a reduction of up to 10% of thepolicy's insurance fund value in de-termining the cash value available toa surrendering policyholder .7. Economic Adjustments To

Cash Values . As an alternative to the10% adjustment on paid-up values todetermine cash values, companiesshould be allowed, but not required,to provide economic adjustments forchanges In Interest rates . We do nothave a proposal for a specific type ofadjustment that the SNFL law shouldallow, but do have some recommen-dations for desirable characteristicsof such an adjustment .

The Actuarial Update

8A. Non-Guaranteed Elements inNon-Par Policies May Require Fur-ther Regulation , but Not Under tStandard Nonforfeiture Law .general, non-guaranteed elemethat are illustrated at issue pose dis-closure issues that should be subjectto regulation. In addition, some non-guaranteed elements distribute gainsfrom prior contract durations; theseshould be subject to regulatory andactuarial standards similar to thosein effect for dividends .8B. A Non-Guaranteed Element,

Once Credited, Should Be Nonfor-feitable. However, once a non-guar-anteed element has been credited toan Insurance fund value, it may besubject to the same adjustments asguaranteed portions of the insurancefund value, such as surrender chargesnot exceeding unamortized, unusedacquisition expense allowances . A

Florida Bar BriefOn September 29,1989, the Acad-emy filed a brief with the FloridaSupreme Court, In re: FAQ #89001 , Nonfawyer Preparation ofPension Plans. The case, referreto in the OctoberUpdates LegLines column , involves an attemptby the Florida Bar Association togain a decree from the State'sSupreme Court that would pre-vent nonlawyers from active par-ticipation In retirement plan de-'sign, drafting, operation , and ter-mination. The suit has garneredmuch attention , and the involve-ment of other parties includingthe Conference of Actuaries inPublic Practice ; the National As-sociation ofLife Underwriters andits Florida affiliate ; the Associa-tion of Private Pension & WelfarePlans; the American Council ofLife Insurance ; the Florida Bank-ers Association : and several ma-jor actuarial and accounting con-sulting firms . The Federal TradeCommission also is scheduled toMe a brief on the negative Impactsuch new limitations might haveon competition. The court hasgranted a delay to the Bar Asso-ciation to respond, and we arefollowing the case carefully, awaiIng further developments . Copseof the Academy's brief are avail-able upon request from theWashington office .

November 1989

IC Standards Outlook

• JUby Christine Nickerson0

At its final 1989 quarterly meeting onOctober 12-13, theActuartal StandardsBoard (ASB) unanimouslyvoted to adopta new standard of practice titled, Actu-arial Standard of Practice ConcerningRisk Classtjtcatfon- The purpose of thestandard is to provide guidelines foractuaries in designing, using, andupdating risk classification systems,This standard was released as an expo-sure draft in April 1989. The draftingcommittee received twenty-three com-ment letters and, based on these com-ments, made several changes to theexposure draft .

Also at the meeting, the ASB ap-proved the release of four exposuredrafts, as described below .

Discounting of Property and Casu-alty Loss and LossAdjustment Reserves.The purpose of this proposed standardis to define the issues and considera-tions that an actuary must take intoaccount In determining discounted lossand loss adjustment expense reserves .

Guidance on Estimating and Prouid-for the Cost of HIV-Related Claims

lovered Under Life and Accident andHealth Insurance Fbiicies . This pro-posed standard would provide guid-ance to the actuary in carrying outprofessional responsibilities in estimat-ing and providing for futureclaims costsarising from the human immunodefi-clencyvirus (HIV) epidemic . (See HaroldIngraham's article, page 1 .)

When to do Cash Flow TestingforLife and Health Insurance Companies.The intent of this proposed standard isto provide guidance to the actuary indeciding whether or notto perform cashflow testing (in a manner consistentwith the cash flow testing standardsadopted by the ASB in October 1988)when giving a professional opinion orrecommendation for a life or healthinsurance company.

Actuarial Practice Concerning HealthMaintenance Organizations and OtherManaged-Care Health Plans. In devel-oping this proposed standard, theHealth Committee of the ASB Identifiedseveral major issues requiring specialconsideration for HMOs and other

Waged-care health plans-issues notsplicable to all health plans in general.

These include (1) transfer of risk toproviders, (2) management of deliveryof care, and (3) multiple delivery sys-tems and financial structuring.

These exposure drafts will be pub-lished and distributed during the nexttwo months, and interested parties areurged to submit comments and sugges-tions to. the ASB. All comments willreceive consideration by the pertinentdrafting committees in preparing thefinal standards for adoption by the ASB .

Projects currently under develop-ment by ASB operating committees areas follows :

Casualty Committee

In addition to the discounting exposuredraft listed above, the Casualty Com-mittee is awaiting public comment on asecond exposure draft titled, ?rendingProcedures in Property/Casualty Insur-anceRatemakfng, which was publishedlast month.

Health Committee

The Health Committee is focusing ontwo projects, the HMO exposure draftdescribed above and development of ageneralized health ratemaking stan-dard. The committee hopes to presenta proposed ratemaking standard to theASB in January 1990 . The proposalwill address health ratemaking in gen-eral and include health insurance in allits forms.

Life Committee

The Life Committee will review com-ments on the HIV and cash flow testingexposure drafts described above andconsider revisions to the proposals . Thecommittee will continue to work withthe Casualty Committee in monitoringthe work of the Appraisal Task Force,

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which Is developing a standard on actu-arial appraisals and actuarial analysesof insurance companies and related or-ganizations. The task force plans tohave a proposal ready to present to theASB in January.

Pension Committee

The Pension Committee has revised Itsexposure draft on shutdown benefitsand because of substantive changes tothe draftwill re-expose it. The draft is aproposed addition to the standard ofpractice titled, farMeas-uring Pension Obligations. The commit-tee has retitled the draft, "Benefits UponlmmluntaryTennlnation ofan EmployeeGroup" and has strengthened the re-quirement for a numeric demonstrationof potential effects of the activation ofgroup termination benefits .

Retiree Health Care Committee

The committee Is planning to meet withthe project manager for the FinancialAccounting Standards Board's standardon post-retirement benefits other thanpensions and discuss drafting an actu-arial compliance guideline.

Specialty Committee

The Expert Witness Task Force hascompleted its work and, at the JanuaryASB meeting, will present a proposedstandard relating to expert witnesstestimony by actuaries .

Task Force on Long-Term Care

The task force held its first meeting onOctober 6, 1989 . and discussed majorIssues relating to the financing of long-term care. The task force hopes to havea proposed standard ready to present atthe April ASB meeting. A

Enrolled Actuaries May Opt forInactive StatusThere is a provision at the very end of the regulations on continuing educa-tion for enrolled actuaries that permits inactive retirement status. An enrolledactuary (EA) who applies for this status is allowed to keep his or her EA status,although he or she is no longer permitted to sign a Schedule B .According to Leslie Shapiro of the Joint Board for the Enrollment of Actu-

aries, after choosing inactive retirement status for any reason, active EAstatus can be regained simply by meeting current continuing education re-quirements . However, if an EA does not know to claim this status and relin-quishes his or her FA status completely , EA status can be regained only byretaking the exams.

Inactive retirement status can be obtained simply by checking off a box onthe re-enrollment form that will soon be sent to all EAs by the Joint Board .

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ESTIMATING THE COST OF HIV(continuedfrom page 1)

Companies in the United States," wasproduced by the Society of Actuaries'(SOA) Task Force on the Implications ofAIDS. A second report. "U.S . GeneralPopulation Projected AIDS MortalityRates," was produced by the SOA'sCommittee on HIV Research . Theseprojections are Important to actuariesbecause, as Thomas W. Reese, chair-person of this HIV Research Commit-tee, states, "actuaries must considerAIDS projections in establishing re-serves and evaluating surplus require-ments that provide for the ongoing fi-nancial health of the company."

Reserve TestingThe exposure draft states that reservebases typically include margins . formortality and morbidity to absorb partof the risk of pricing. However, suchmargins In statutory reserves histori-cally have not been set at levels in-tended to cover the excess mortalityand/or morbidity resulting from theoccurrence of epidemics of suddenimpact and short duration (such as theinfluenza epidemic of 1918-1919) . Inthose instances, a combination of sur-plus allocations and dividend reduc-tions has been the accepted way ofhandling the excess risk. In the case ofthe HIV epidemic, this approach is notappropriate, however, because of themagnitude and potentially long-termnature of the epidemic .The exposure draft opines that the

valuation actuary should demonstrateeither that net statutory and GAAPreserves contain adequate provision forthe cost of claims related to HIV infec-tion, or that the cost of any excessclaims not so covered is provided for byan appropriation of surplus or otheradjustments .With respect to valuation work and

the impact of the HIV epidemic, theactuary may need to do cash flow test-Ing, in order to properly formulate anopinion on statutory or GAAP reserves.If the reserve testing clearly indicatesthat, In the actuary's judgment, re-serves should be increased, then thesereserves should be increased directly;an allocation of surplus alone wouldnot be appropriate .

The Actuary's ReportUnder the proposed standard, the valu-ation actuary would prepare a report

The Actuarial Update

documenting the assumptions madeconcerning the extent to which HIVinfection is associated with the blocksof insurance being valued for the com-pany. Projections of HIV-related claimsthat the company should expect to payare also documented . If additionalreserves are not established after suchprojections are made by the valuationactuary , the reasons for the company'snot doing so should be fully documented .

Lapse Rates .Any cash flow testing that Incorporatesthe Impact of the HIV epidemic shouldrecognize that lapse rates for the in-fected Insured population will be sig-nificantly lower than the correspondinglapse rates for the uninfected popula-tion. Almost all HIV-infected individu-als will keep their policies in force, andthere is a high risk that projections offuture HIV-related claims involving agiven cohort of insured lives will bematerially understated unless this indi-cated lapse differential is taken intoaccount and appropriate reserving tech-niques are used .

Range of HIV ImpactApart from valuation work, the actuaryneeds to consider his or her company's

business strategy for dealing with theHIV epidemic, with respect to pricingand appraisals, for example. The copangs business plan would includirectives for pricing/repricing, under-writing , marketing/seiection, the com-pany's reserving philosophy, and levelof surplus.

Concluding Comment

A premise of the proposed standard isthat It is essential that actuaries re-sponsible for reserve valuations evalu-ate the impact of the HIV epidemic ontheir companies. Their analyses shouldinclude development of estimates ofdW-related claims expected to be paid,and studies of reserves in the face ofthis epidemic, using cash flow testingwhenever appropriate .The actuary providing the opinion

should describe the manner in whichthe HIV epidemic is taken into account .And, , if the actuary determines thatsome form of financial statement recog-nition is necessary, it is preferable toset up additional reserves (and, in somecases. virtuallyrequired) ; however, someallocation of surplus funds is also a*ceptable. A

Checklist of Academy StatementsSeptember 1989

TO: NAIC Life and Health Actuarial Task Force, September 26, 1989. RE:Recommendations regarding nonforfeiture values on life insurance. BACK-GROUND: This report was prepared €n response to a request from the NAICLife and Health Actuarial Task Force .

Study on Full-Funding Limitation ReleasedIn mid-November the Department of Labor will issue a report on the impactof the new full-funding limitation Congress established as part of theOmnibus Budget Reconciliation Act of 1987 (OBRA 1987) . Under theadditional OBRA 1987 limitation , sponsors of defined benefit plans cannotmake tax deductible contributions to their plans if such contributions wouldcause the assets of the plan to exceed 150% of current liabilities under theplan. Moreover, current liabilities must be valued using an interest ratewithin a narrow band around a four -year weighted average of the thirty-yearTreasury Bond rate . The report examines the effect of the new limitation onplan assets and employer contributions between 1988 and 1992 , the first fiveyears of the new rule's operation.The Department's study, OBRA I987: The Impact ofLimiting Contributions

toDef lned BenefitPlans, was performed under contract by Hay/Huggins. TheDecember Update will feature a discussion of the study's major findings .

November 1989

Regulators File Qualificationsjnuiries qwith Discipline Committeeby John A. Fibiger

Inquiries to the Academy's Committeeon Discipline from insurance regula-tors concerned about actuarial qualifi-cations are placing new scrutiny onmembers who sign loss reserve opin-ions.The inquiries relate toAcademy Quali-

fication Standards for signing opinionsas a "qualified loss reserve specialist"on the National Association of Insur-ance Commissioners (NAIC) Fire andCasualty Annual Statement Blank . TheQualification Standards (publishedannuallyin theAcademyYearbook) wereadopted in 1981 ; they set forth specificrequirements for educational achieve-ment and experience by Academymembers .

Educationally, the qualified loss re-serve specialist should be either a Fel-low of the Casualty Actuarial Society(CAS) or should have acquired a com-prehensive knowledge in several areas,including mathematics, economics,

emaking principles, insurance ac-lunting, and reserve techniques. Theexperience requirement mandates atleast three years of recent experience ina responsible capacity under qualifiedsupervision, so as to develop the skilland judgment required to render anopinion .The inquiries received from insur-

ance regulators all concern individualswho are not Fellows of the CAS ; hence,the individuals will need to demon-strate how they have acquired the"comprehensive knowledge" of the re-quired subjects . They will also need todemonstrate that they have updatedand maintained their knowledge bycontinued study and practice .

A failure to satisfy Qualification Stan-dards may result in the imposition of adisciplinary action. Interpretative Opin-ion 5 to the Guides to ProfessionalConduct of the Academy notes that an"actuary's rigorous training" may leadthe public to believe that "every actuaryis well-qualified to advise on all actuar-ial matters ." However, a "special re-sponsibility rests on every actuary to

dertake only those assignments forch the actuary is currently quali-

fied." While each actuary must makean initial determination as to whetherhe or she is indeed qualified, in the end ."the actuary must be prepared to ac-

cept the judgment of peers on the valid-ity of the decision" as to his or herqualifications .When the NAIC decided that member-

ship in the Academy would be a defini-tion of qualifications to sign an annualstatement, the Academy stressed thatqualification standards and the disci-plinary process would help make surethat Academy members only signedstatements that they were indeed quail-fied to sign . Members who hold creden-tials from the Society ofActuaries or theJoint Board for the Enrollment ofActu-aries should therefore be aware of theneed to satisfyadditional criteria, shouldthey sign loss reserve opinions. Theyshould be prepared to establish thosequalifications upon inquiry.Appropriate documentation of edu-

cational and experience qualificationswill assist the Committee on Disciplinein responding to inquiries from insur-ance regulators .

In a development related to discipli-nary matters and property/casualtypractice, the New Mexico Department ofInsurance announced its imposition ofsubstantial fines against an insurancecompany, and the preparation of chargesagainst another two firms, for falsestatements made in connection withrate requests. The Department alsoannounced a decision to review moreclosely the actuarial certifications re-quired under state law in connectionwith rate filings. Superintendent Fa-bian Chavez, Jr. stated "we have alwaysrelied heavily upon actuarial memo-randa and the actuarial certification inapproving rates and rate increases ofinsurance companies." He also statedthat "the actuary is a professional, andas such should be providing the statewith a professional opinion regardlessof his or her affiliation ."

He noted that, while the actuaries ineach disciplinary case claimed that theywere not responsible-because theirwork had been unknowingly modified,the superintendent noted that the actu-ary, as signatory to the certification,retains responsibility for It. He statedthatwhile no referrals had been made tothe Academy for disciplinary investiga-tions to date, "the Department will nothesitate to report violations when war-ranted . "A

Actuarial Schoolin Mexico CityCelebrates20th YearThe Actuarial School of Universi-dad Anahuac, Mexico City, heldan actuarial symposium October2-6, in honor of the school's 20th-and the university's 25th-anni-versary. Four actuaries from theUnited States ofAmerica attendedthe symposium and presentedpapers .Samuel Cox from the University

of Nebraska spoke on the organi-zation and education of actuariesin the United States of America .Robert Darby of The Wyatt Com-pany spoke on the role of actuariesin risk management. RobertMyers, a Social Security consult-

ant, relatedthe actuar-ial proce-dures andfinancialproblems ofthe SocialSecuritySystem .Fernando

Troncoso,T}u ncaso an interna-tional consultant with The WyattCompany, and a graduate of theAnahuac Actuarial School's char-ter class, spoke personally to theschool's current 120 undergradu-ates about the future responsibili-ties of actuaries .He later recalled that, of the

twenty-three students enrolled inthat first class of 1969, seventeen(fourteen men and three women)had finished . The four-year pro-gram, largely based on books rec-ommended in the Society ofActu-aries' syllabus , is still a tough one .In addition to passing universityexams, a graduate can become anactuary in Mexico only if he or shecompletes a written thesis andtakes a public professional examsimilar to the oral defense of a dis-sertation. If successful , the actu-ary will be assigned a number bythe government of Mexico, indi-cating his or her professional li-cense to practice .

9

10 The Actuarial Update

An Open Letter to the President of the Institute of ActuariesRoger D. Corley, president of the Institute of Actuaries in Great Britain, contributed an editorial to the August 1989 Update,which he asked, "Do we know whether we have the will, as a profession , to be responsiblefor the financial probity and long-viability of the institutions and funds that we advise?" His reflections elicited this responsefrom an American actuary , John C.Angle, who is a U.S.. delegate to the International Actuarial Association .

Dear Roger:

My thoughts were stimulated by yourprovocative guest editorial: thoughtsabout actuaries' interdependence withthe business world; actuaries' resis-tance to change ; and the demise of theromantic notion that an actuarial di-ploma makes its holder a final andsupreme judge of solvency and probity .

I understand that you are troubled bythe prospect of the European Commu-nity in 1992 because of the 'very widegap between the 'freedom with public-ity' culture of the United Kingdom andIreland and the 'tight regulation' cul-ture of the rest [of Europe] ." Appar-ently, you understood discussions atthe North American centennial celebra-tion to signal a similar underlying issuefor American actuaries .You encapsulated your sense of the

American issue in your editorial withthis challenge :

Do we have the will, as a profession,to be responsible for the financial pro-bity and long-term viability of the Insti-tutions and funds that we advise?"I found it helpful to restate your

challenge as two choices for Americanactuaries, and thereby make explicitthe conditions that seem to be implicitin the challenge .

I. Do American actuaries have thewill, as well as the power and influence,to be solely responsiblefor thef lnancialprobity and long-term viability of theinstitutionsandfunds that they advise?The answer to this question is an

unqualified "no." The American systemis one of shared and , often overlapping,responsibilities . Our hierarchies havedisappeared. (As have entities thatmight once have empowered actuariesto act as holders of the collective con-science .)Congressman Tom Foley , a gentle

and thoroughly competent lawyer, re-cently succeeded Jim Wright of Texasas Speaker of our House of Representa-tives. When asked why the Speakercan't deliver votes anymore in the styleof Sam Rayburn, Foley replied: "The

hierarchical society is gone, in thecountry and in the Congress."

"Tight regulation" by the fifty stateshas been a characteristic of the UnitedStates since 1851 . The debates herehave never been whether regulation isappropriate, rather they have beenabout the advantages of state versusfederal regulation . The huge scandal ofU.S. savings and loan banks does littleto help those who favor federal regula-tion. The legacy of inept regulation andblatant influence-peddling will costAmerican taxpayers at least $150 bil-lion over the next ten years .

But even where we have federal regu-lation, as in pensions and variable lifeinsurance , it is "tight" regulation. Actu-aries who practice In the pension areamust be certified by a federal board ofexaminers and make their way througha thicket of laws, regulations , and courtdecisions .

II. Do American actuaries have thepolitical , management. and human-re-lations skills, as well as the patienceand will , to gain positions of influenceover the probity and long-term viabilityof the institutions and funds that theyadvise?My answer to this question is a

guarded "yes." At mutual life insurancecompanies , where I have spent mycareer, actuaries have long been ap-pointed to senior management posi-tions . There, some succeed and somefail in influencing company policy. Afew, like myself, becomecompany presi-dents. Then we find ourselves trying tointerpret actuarial reports to intelligentlaymen and becoming exasperated atactuaries who cannot meet deadlinesor manage complex projects .However the hierarchy has become

as diffuse at most mutual companies asit has elsewhere in America . The post ofchief actuary has vanished and itspowers distributed to pricing actuariesin several strategic business units andto the chief financial officer (CFO), whooften manages the planning and re-porting systems. Some of these sys-tems monitor how well pricing actuar-

ies do , with respect to the decisions ofbusiness leaders. There is, on the otherhand, growing responsibility on the partof actuaries for the consequences oftheir decisions and recommendations,within the business units .

Boards of directors In America arenoticeably more assertive than was thenorm fifteen years ago. They constituteyet another entity that has both thepower and the will to be concernedabout long-term viability. Boards ofdirectors cannot be expected to delegatewhat they see as their responsibilities toan actuary. They are, on the otherhand, anxious to hear what actuarieshave to say. But only on the conditionthat the communication is in commonEnglish and appropriately addressessuch key assumptions as future inter-est rates and expenses .

American ActuariesRespond

S

Meanwhile, American actuarial leadersare not asleep . They recognize thechanging atmosphere here. The sticki-est issue , one unlikely to be solvedwholly within the profession, is thematter of accountability for results .The clearest statement of this prob-

lem comes from the pen of Peter F .Drucker: *

Professionals have always resistedattempts to hold them accountable. Itis the essence of being a professional-- so the doctor, lawyer, engineer, orpriest has always argued -- that one isnot accountable to laymen and thatqualation rather than performanceis thegroundofacceptance. This wasso, but today it is no longer tenable. ..(People who) possess a distinct or-ganized knowledge.. . are the verycenter ofsociety and . . . itsperformancecapacity . . . .fllhetr claim that they Jus-t ffy themselves by their diploma, tlatraditional claim of theprofesstonal,no longer valid. Society must demandthat these people think through what

(continued on page 12)

November 1989

INVESTMENT ACTUARIESFORECAST VOLATILEMARKET IN 2000

*ntinuedfrom page 1)

dents expect to see the Dow Jones In-dustrial Average peak above 3,000 inthe next ten years; 64% said that theDow Jones average also would reach alow of under 2,000 at some point beforeA.D. 2000. Nearly half of the actuariespolled predicted a stock market crash(a sudden drop of more than 30%) bythe year 2000, although they agreedthat such an occurrence would notprecipitate a general economic depres-sion.Insurance companies were not likely

to fail In the event of a crash, accordingto 67%-and 59% thought that pensionplans would be similarly unaffected .In this regard, Murphy commented

that "proliferation of investment ve-hicles, the opening up of new globalmarkets, and the consolidation of fi-nancial securities firms are just a few ofthe critical changes taking .place thatwill profoundly affect the state of oureconomy in the coming decades." Re-ferring to survey results predicting

ater use of employee stock optiond stock bonus plans In employee

compensation programs, he added : "ItIs clear that the average workingAmeri-can will be directly affected by stockmarket trends as many employee bene-fits will be delivered in the form of in-vestment vehicles."Following Murphy's address, the

panelists delivered perspectives onupcoming changes in the world of in-vestment and asset management .Frederick B. Putney, on the faculty ofColumbia University Graduate Schoolof Business, declared that "Americanhegemony over Europe and Japan Isover," explaining that the United States'"consumptive and confused behavior ofthe sixties and seventies" disrupted thecountry's economic focus so that, 'veare now trying to make the moves tostay competitive in aworld that is chang-ing fast."

The "driving force" for change in to-days insurance companies will be thepension and investment side of the

uses, Putney said. The experience ofumber of life insurance companies

in the 1980s writing guaranteed invest-ment contracts with long horizonsagainst their portfolio and the changingmarket will provide "good lessons" on

11

investment risk management and assetliability duration. "Modeling and sta-tistical breakthroughs will help actuar-ies and Investment managers handle orlimit their risk better," Putney added,cautioning that this does not mean thatactuaries will become the "rocket scien-tists" of the 1990s . However, "theopportunities [for them] to try new tech-niques to manage and specify risk willblossom."Eric P. Lofgren, consultant for The

Wyatt Company, projected "an expo-nential increase in the level of govern-ment Intervention In pension fund in-vestment management" by 2000. He

Charles Trzcinka, senior researcheconomist with the Office of EconomicAnalysis of the Securities and ExchangeCommission, said that "probably thesingle most difficult myth to dispel isthat the financial markets are growingin importance." As evidence that they'renot, Trzcinka related that "volatility ofU.S. and world financial markets hasnot permanently changed since the early1980s and continues, post crash . to beabout the same as before the crash ."Although "nearly 25% of the value oftheequity In U.S. and world corporationswas destroyed in a week. .. no othersector of the economy was affected," he

Investment Forum's Media Spinoffs

Press coverage surrounding the Investment Risk Forum kept pace with thesuccesses of the two previous Forecast 2000 forums- with radio, television,and the print media all taking part . The New York Post ran a story followingthe forum, as did the Wall Street Journal CNBC-NBC's cable business chan-nel-conducted a live five-minute interview with the Academy's Jim Murphyfor their "Moneywheel" program, carried to over thirteen million homes.Financial News Network, Business Radio Network, and Mutual Broadcast-ing/NBC Radio all interviewed Murphy in conjunction with the forum .

As a result of media contacts from previous Forecast 2000 forums, thesesomewhat unusual placements also were made: Willard Scott, NBC's TodayShow weatherman, in the course of celebrating a Maryland woman's 100thbirthday, told his audience "My actuary lives in Maryland," and proceeded todefine what an actuary is. Lastly, the earlier environmental risk forum InToronto, Canada, elicited a National Public Radio interview with InsuranceServices Office Senior Vice President Mavis A . Walters, who discussed thefinancial effects of then-raging Hurricane Hugo.

noted that "the possibility of directingpension investing for social objectivesis so compellingly attractive for Con-gress, that pension plan investmentincome may be taxed even if the budgetdeficit is solved by other means ." Aslegislation drives Investment, benefits,and pension contribution policy In"conflicting directions," an arbiter isneeded. "The actuary is best positionedto fill this role," said Lofgren, " sincenobody else has as good a chance toperceive interdependencies betweenassets, liabilities, and contributions ."Further, now that pension Investmentconsulting on an asset-only basedapproach has become obsolete, Lofgrensaid he would not be surprised if by theyear 2000, "we saw many of the invest-ment consulting firms merging withactuarial firms."

said. "Compared to the effect of themarket in 1929, there is little doubtthat financial markets today are lessinfluential .'

He reported that the unification of theEuropean Economic Community in1992 will have the effect of acceleratingthe reduction in the costs of investingand the expansion of investment strate-gies. And the development of overseasfinancial markets will tend to "reducethe chances of 'absurd policies fromCongress' that the respondents to thesurvey are concerned with," Tizcinkasaid. "To the extent that regulationtends to improve access to markets andlower the cost of Investing, I predict thatwe will see more regulation-for ex-ample, insider trading rules will likelybecome international," he said . A

12

OPEN LETTERTO BRITISH INSTITUTEPRESIDENT(continuedfrom page 10)

they should be held accountable forand that they take responsibility fortheir contribution .

Individual actuaries in the corporateworld are held accountable , whetherthey like it or not. Planning is endemicas are performance appraisal systems .One suspects that consultants aresuccessful only to the degree that theyaccept accountability for their actionsand try hard to explain the rationale oftheir recommendations .Actuarial bodies have a different

problem . In one area our leaders walka tightrope . On one hand , they mustavoid over-selling the qualifications ofactuaries. Skills can indeed be taughtbut manageme nt ability or comfort withmarket-driven decisions cannot. Onthe other hand, our organizations mustdevelop standards of practice , keep theskill of their members up-to-date, andrecruit candidates who can succeed inthe world of tomorrow. These matters,indeed, are all being addressed in theUnited States.The Board of Governors of the Society

ofActuaries has endorsed aTask ForceReport on the Actuary of the Future .The task force recommended recruitingcandidates who are interested in busi-ness and management and adding morebusiness subjects to the syllabus.A new Actuarial Standards Board

(ASB) now sits under the chairmanshipof Ronald Bornhuetter. The ASB hasset out to establish standards of prac-tice to which actuaries can be heldaccountable . You will sense the difll-culties the ASB faces when I tell youthat a major question is one of explicitlyassuming the time value of money incalculating long-tail casualty loss re-serves .Also, the American Academy is plan-

ning to restructure itself. One possibil-ity under consideration is to name thepresidents-elect of all U .S. actuarialbodies as voting board members of theAcademy. It is hoped that this movewould allow U .S. actuaries to speakwith one voice on public questions ofconcern to them .

Even so, our profession's leaders areconstantly reminded of the conserva-tism and inertia of the rank and file .SOA President Ian Rolland , speaking atthe centennial, noted a survey of

member satisfaction with their careers .It found SOA "members . . . generallycontent with their current circum-stances . " SOA members also narrowlydefeated arecentamendmentthatwouldhave allowed a membership vote togrant examination credit for collegework. Some years back , SOA membershad voted to muzzle their leaders fromexpressing any opinion that had notbeen specifically authorized by a major-ity of members In a special election .

Last Word

I can 't resist one final quotation aboutthe United States . You know, of course,of Sir Alan Walters, the economic ad-viser to Prime Minister MargaretThatcher. Sir Alan divides his timebetween Washington, D.C. and Lon-don. When in Washington he isa seniorfellow of the American Enterprise Insti-tute . The president of that conservativethink-tank, Christopher Demuth, wasquoted by the Wall StreetJournal as hespoke about changes within the SovietUnion .

I hope (Soviet Ambassador Yuri) Du-binin won 't mind my observing thatthose of us in the West who are soenthusiasticabout thechanges sweep-ing his country feel this way not onlybecause we know of the happinessand prosperity [such changes) canbring to his countrymen, but becausewe relish the thought of aSoviet Uniontransformed into a politically frac-tious and argumentive nation, rent bydisagreements and uncertainties andby personal and philosophical rival-ries-- in short, a nationjust as selfabsorbed andunruly and incapable ofdecisive state action as our nationsare . Was Soviet power builtforthis?'is the questionput by YegorLigachev.We Americans hope so, since this isconspicuously what American powerwas built for.

Mr. DeMuth might just as well havebeen talking about actuaries in theUnited States.

John C. AngleLivonta, Nebraska

Angle is a member of the board ofdirec-tors of Guardian Life Insurance Com-pany- .

'Managing in Turbulent Times, PeterF. Drucker. New York: Harper & Row,1980, p. 131

The Actuarial Update

CLRS SEMINAR(continued from page 5)

tine condition not seen since the dinsaurs roamed the earth ."Insurance adjusters must move

quickly to assess environmental dam-age, Gulledge said, as a way of control-ling adverse publicity and to hold downcosts. Problems can "escalate veryquickly," he noted, but instead of focus-ing exclusively on coverage availabili-ties, bodily injury, and property dam-age issues, he urged insurers to delveinto the underlying nature of the envi-

ronmental hazard. Gulledge noted thatfederal and state environmental policyguidelines are now more clearly spelledout, which is likely to result in thedispute process being "speeded up ."Due to the widespread use of the claims-made policy, "in some cases you can dothis without legal counsel-you can goto the regulator and tell them what youwant to do."Gulledge added that the burden of

environmental cleanup cannot be rea-sonably assumed by the government .Market-based incentives, such as theupgrading of loans to improve pollutioncontrol facilities and the use of emis-sions trading credits, are being devel-oped to improve risk management. "En-vironmental claims management doesrequire specific expertise not found inthe traditional insurance loss reservingarea," he said

; however, the Introdu tion of specialty Insurers, improv4regulation, and a better overall under-standing of the environmental liabilityproblem should help return more com-panies to the market . A