April/may 2011 Volume 8 Issue 2 ready for Change? What IFRS Means For insurers

Housing and Retirement The most significant housing issues affecting retirees

Growth of An Association An in-depth look at a new kid on the block

Attestation What to do if you haven’t yet attested wellness programs andcomparativehealthcare systems.And—numerous networkingopportunities. The HappinessAdvantage . Plus—sessionsonawide varietyoftopics—complexityscience,health care reform, Services. SusanDentzer, editor-in-chief ofHealthAffairs. ShawnAchor, founderofGoodThinkInc.andauthor of Lock inyourspot:

June 13–15, 2011

Westin Copley Place Keynote speakerRickFoster, chiefactuaryforthe CentersforMedicare and Medicaid Boston, MA http://HealthSpringMeeting.soa.org. Here’s what last year’s attendees had to say:

“This is the best meeting for health actuaries.“

“My experience with the meeting was very good, principally because of all the leading-edge topics covered.”

“The educational sessions were absolutely excellent and right on target with the current topics we are facing in business.” The Actuary is published bi-monthly (February, Contributing Editors April, June, August, October, December) by the Corin Chapman, FSA, MAAA Society of Actuaries, 475 N. Martingale Rd., Suite [email protected] 600, Schaumburg, IL 60173-2226. Periodicals post- age paid at Schaumburg, IL, and additional mailing Peter Hayes, FSA, FCIA offices. USPS #022-627. [email protected]

This publication is provided for informational David Ingram, FSA, CERA, MAAA and educational purposes only. The Society of [email protected] Actuaries makes no representation or guarantee with regard to its content, and disclaims any Cathy Lyn, FSA, FIA responsibility or liability in connection with the [email protected] use or misuse of any information provided here- Tom A. Phillips, FSA, MAAA in. This publication should not be construed as professional or financial advice. Statements of [email protected] fact and opinions expressed herein are those of James Ramenda, FSA, CERA the individual authors and are not necessarily [email protected] those of the Society of Actuaries or its officers, directors, staff or representatives. The Society Sue Sames, FSA, MAAA of Actuaries does not endorse or make any [email protected] guarantee with regard to any products, services or procedures mentioned or advertised herein. Ross Winkelman, FSA, MAAA [email protected] The Actuary is free to members of the Society of Actuaries. Nonmember subscriptions: students, Ruth Ann Woodley, FSA, MAAA $22; North American $43; Int’l $64.50. Please send [email protected] subscription requests to: Society of Actuaries, P.O. Box 95668, Chicago, IL 60694. SOA President Donald J. Segal, FSA, FCA, MAAA, EA The Actuary welcomes both solicited and unso- [email protected] licited submissions. The editors reserve the right to accept, reject or request changes to solic- SOA Staff Contacts ited and unsolicited submissions, as well as edit Patrick Gould articles for length, basic syntax, grammar, spell- Managing Director of Marketing ing and punctuation. The Actuary is copyedited & Communications according to Associated Press (AP) style. [email protected]

For more information about submitting an arti- Lisamarie Lukas cle, please contact Sam Phillips, associate editor, Director of Communications at (847) 706-3521, [email protected] or Society [email protected] of Actuaries, 475 N. Martingale Rd., Suite 600, Schaumburg, IL 60173-2226. Karen Perry Publications Manager ©2011 Society of Actuaries. All rights reserved. [email protected] No part of this publication may be reproduced in any form without the express written permission Jacque Kirkwood of the Society of Actuaries. Senior Communications Associate POSTMASTER: Send address changes [email protected] to the SOA, c/o Communications Sam Phillips Department, 475 N. Martingale Rd., Suite Magazine Staff Editor 600, Schaumburg, IL 60173-2226. [email protected]

Erin Pierce XX% Graphic Designer Cert no. XXX-XXX-XXX [email protected]

April/May 2011 issue of The Actuary 24 ‘

Editorial Correction The title of the February/March 2011 SOA At Work column was incorrect. The correct title is Committed to Communicating. The Actuary apologizes for any inconvenience.

Cover Story Departments

24 aRe You Getting Ready For 6 eDitorial: Looking 30  CPD: Attestation Change? out for our own 32 eDucation: Broad- International and U.S. accounting standard setters are hard at work 8 letter to The Editor: ening ERM Horizons rewriting the rules governing Is It really An Epidemic? 36 The SOA At Work: insurance contracts. Given the 10 letter From The Strengthening resources demanded by short term concerns, including both President: Education the economic environment and Power In The People 38 Recommended regulatory reform, what are insurers Readings doing now and what should they consider doing in the near future? By Sam Gutterman, Tessie Johnson, and David Legge

Features

12 FROM IDEA TO DEVELOPMENT THE GROWTH OF AN ACTUARIAL ORGANIZATION Starting a new actuarial organization is not easy. Fortunately, the International Actuarial Association Advice and Assistance Committee is available to ensure the bulb of thought burns bright.  By Tarmo Koll

18 Housing Wealth And Retirement What are the most significant hous- ing issues affecting retirees? Is pay- ing off a mortgage still important? These questions and more are what recently led a roundtable panel to address housing in retirement issues. By Steve Siegel 12

Editorial Looking out for our own

By Sue Sames

This past summer, while home on while I was pregnant anyway?) I’m grateful I did not realize until reading that article break, my daughter, a junior at a university these near misses are all in my head. that student loans are not dischargeable by in London, sat me down and said, “Mom, bankruptcy, although they are deferrable you have got to tell me what to do.” This Although the career path for actuaries is for hardship. As (barely) legal adults, was followed by, “What should I major in? still as structured as it was when I started 18-year-olds can enter into financial Really, tell me how to get a job.” out, the current employment market is agreements and borrow significant sums. more challenging, as it is for all professions Why not borrow money for another three My daughter’s request caused me to these days. There have been any number years of graduate school if you can’t get reflect on my own experience and take of articles and posts on how expensive a job with a bachelor’s degree? Student stock of how much things have changed higher education is and the staggering borrowers are particularly vulnerable. since I started out 25 or so years ago. I level of debt students can accumulate, Why wouldn’t students expect that lenders have to say that I can’t directly relate especially if graduate school is required. actually think they are a good risk—after­­ to her situation. My career path was While the cost of higher education is a all, why would these institutions lend large always fairly straightforward. I applied to perennial issue, it is much more acute now sums of money if they didn’t believe the one college and didn’t even seriously as the job market, even for actuaries, has students had good prospects for paying consider that I might not get in. Actuarial taken such a hit. it off? Science was always the plan; teaching was a half-hearted fallback. Looking back, Yes, actuaries are once again the #1 job, Megan McArdle, the business and it is frightfully easy to picture things not but now there are posts by dissatisfied economics editor for The Atlantic, stated it working out as well as they did. (What if students who are not able to find jobs and more bluntly, in her posting about student my parents hadn’t been able to afford to feel that the actuarial career was oversold. loans dated Sept. 23, 2010. send me to the one school I wanted? What If it is any comfort to us, actuaries are if I hadn’t passed the first exam sophomore faring much better than lawyers. The “Who but a lunatic would loan year, which led to my first internship? What recent New York Times article on “Is Law money to an eighteen year old with if I hadn’t gotten the second internship and School a Losing Game?” centered on the no job and no credit record, in the the full-time job offer that followed? What story of a recent and unemployed law hopes that they will graduate college if I hadn’t been able to continue to pass school graduate, who is now $250,000 and begin speedy repayment? ... To exams and complete my FSA after having in debt, due mostly (but not entirely) to make this product work on a mass children? How did I manage to pass exams student loans. scale, you need the government

06 | The Actuary | April/May 2011 guarantee—and the government’s namely, credit card debt, student But going back to ability to shield those loans from loans and college expenses. what first got me bankruptcy.” • Make sure the statistics that are started thinking provided by the SOA and others on about these issues, Clearly the student loan system is a employment prospects and earnings my experiences with complex issue and not one that is readily potential for actuaries are realistic actuarial science Sue Sames tackled; however, I think there are some and not subject to misunderstanding. have limited applicability for my daughter, concrete things our profession can do to • Encourage the partners in Centers who inherited my (lack of) athletic ability, help the situation for students generally of Actuarial Excellence to help not my math ability. However, if you know and especially those seeking actuarial students with these practical issues, of internship opportunities for a bright careers. as well as their coursework. In junior majoring in International Business, particular, help them find a “Plan I’d love to hear from you. A • Promote financial literacy. No B” since the actuarial profession one understands the time-value of may not be able to absorb all the Sue Sames, FSA, MAAA, is a consulting actuary with money and risk management as we actuarial candidates that are being Towers Watson. She can be contacted at sue.sames@ do. While The Actuarial Foundation generated. towerswatson.com. has material geared to high school • Employers should strive to maintain students (e.g., Building Your Future), internship programs, which are a it could be supplemented with items very low-cost way to help students of particular concern to students; gain valuable experience.

Sheraton new orleanS liFe&annuity new orleanS, la 2011 SyMPoSiuM May 16-17, 2011 Seek knowledge. gain SolutionS.

the Soa life Spring Meeting and Product development Symposium are now one … the 2011 life & annuity Symposium.

don’t miss this opportunity to expand your life and product development expertise—hear from industry leaders, get insight on hot topics and learn what you need to know to grow your career and company.

here’s what attendees of the 2010 premier life & annuity Symposium had to say:

n “a lot of opportunity was packed into a two-day meeting.“ n “i really liked the mini-seminar about product development that was embedded in the overall symposium.” n “informative and useful.”

Sign up today at www.SOA.org/LAS

April/May 2011 | The Actuary | 07 Letter To The Editor Is it really an epidemic?

Dear Editor, I think it is important to distinguish Alzheimer’s from other It was with great anticipation forms of age-related decline. Not everyone whose memory isn’t as that I opened the Dec. 2010/ sharp as it once was has Alzheimer’s Disease. Additionally, it is not Jan. 2011 issue of The Actuary. clear to what extent substance abuse and hazardous materials expo- As an 80-year-old retired fel- sure contributes to mental decline. What is striking about Alzheimer’s low of the Society of Actuaries, Disease is the rapidity with which it can claim victims. Given that I I was naturally very inter- myself have been subjected to bad medical advice, it wouldn’t surprise ested in learning more about me that the actual incidence rate of Alzheimer’s is much lower and that dementia and Alzheimer’s in many cases are a misdiagnosis. A particular. I was disappointed. Tim Cole, ASA, Perryopolis, Pa. Aside from some aggregate statistics highlighting the A few remarks on the dementia article in the recent Dec. growing numbers of victims 2010/Jan. 2011 issue of The Actuary. and the observation that we are seeing more sufferers at younger ages, there was virtually no infor- First, a jarring phrase in the sidebar: “This accepting attitude has mation of the type one would expect to find in an actuarial publication. allowed governments to ignore their plight and happily accept the $25 billion a year in unpaid labor.” For example, is the increasing incidence of the disease merely a func- tion of an ageing population, or are age-specific morbidity and mortal- Oh, heaven forbid that family members care for each other, when “the ity rates from this cause on the increase? If the latter is the case, what government” should have been picking up the tab. Oh my, we care for is the pattern by age at onset? Furthermore, to what extent is the data our autistic son when he should be institutionalized. How dare the state influenced by more accurate diagnosis? Is there any evidence that expect me to deal with him. lifestyle is a factor? Now, clearly some people do need care beyond the physical (and The above are only some of the more elementary questions that might mental) abilities of family members, but the fact that people with have been discussed. Perhaps others can provide some answers. mental disabilities can be difficult to live with does not mean that it’s the responsibility of “the government” to make the difficulties of life This is a terrible disease, and the article dealt admirably with the socio- go away. I think those who colonized Canada may have thought this logical effects, but not the actuarial aspects. A sentiment odd; one did not go to Canada for the harshness of life to be worn away in the swaddling embrace of the state. And certainly one Alan Richards, FSA, Carlsbad, Calif. did not expect someone else to take on the responsibility of caring for one’s aging mother. It was a duty to do so.

08 | The Actuary | April/May 2011 But that’s just a side issue, distracting from the main thrust of the later prolonged their mental abilities above the threshold article. It’s not clear to me that senile dementia is actually an epi- for dementia.” demic in normal terms. I tried to look around for some statistics on dementia incidence by age and sex, and came across many Of course, it can be that those who will have earlier dementia articles and abstracts. Here are a few: retire earlier due to mental difficulties, but given that life expec- tancy past the old “traditional” retirement ages has increased http://bit.ly/grzVWV. greatly over the past century, it’s just good public policy in http://bit.ly/ErCSo. general to encourage people to work well past what used to be http://bit.ly/hTBEI5. the age of decrepitude but is currently an age of still quite good It seems that the issue is that dementia incidence increases productivity. with increasing age. There seems to be sex-differentials in types of dementia (for some reason women have higher incidenc- es of Alzheimer’s Disease, but It’s not clear to me that senile dementia is actu- men have higher incidences ally an epidemic in normal terms. — Mary Pat Campbell of vascular dementia). But in general the reason you have Another recommendation is for people to have more babies right more female dementia sufferers is that more women survive to now. Because those caring for the elderly senile population when older ages, and older people have a much higher incidence it swells over the next few decades due to demographic patterns of dementia. already baked-in will be those born right now if they want strong, young backs to help physically. So it seems that this “epidemic” is just a part of the larger mortal- ity trends we see impacting retirement systems: people are living Going back to my first point, while it has been considered the longer, and there are consequences to that. Yes, there is early- duty of family to take care of each other, due to dwindling fertility, onset Alzheimer’s Disease, but that forms a small percentage of and relatively high divorce rates, ultimately it will be non-family senility issues. members providing a huge amount of care to the extent that these elderly will be cared for. So it would help if there are plenty of And while the author gives recommendations that suspiciously people to work in this sector. sound like it would help her own organization (how convenient that on SOA.org, I can click in the author bio and end up at Or perhaps Japan will have improved robotics so well that actual her business’ website), here is one of my own recommenda- human beings will not be needed. tions to help combat this issue: Get people to work longer. See http://bit.ly/fidLNr. In any case, it doesn’t help to look at this “dementia epidemic” as some discrete occurrence, as it is part of the same demographic To quote the linked article: “Working beyond normal retirement issue currently roiling Europe and soon to hit North America as age might help stave off dementia, scientists said today. well (though our fertility rates haven’t cratered as badly ... at least not yet). “Keeping the brain active later in life appears to reduce the chances of an early onset of Alzheimer’s Disease, according to I do understand that this author is not an actuary. But if we keep a study of 382 men with probable dementia. The researchers on pushing the concept of actuarial work as embracing risk man- suggest a significant link between later retirement and delayed agement in a global sense, it does us no good to look at a prob- symptoms. … lem as some isolated issue when it is part of a larger trend that is impacting so much. A “The researchers found no link between education or employ- ment and dementia risk, but found that those who retired Mary Pat Campbell, FSA, Croton Falls, N.Y.

April/May 2011 | The Actuary | 09 Letter From The President Power In The People

By Donald J. Segal

Tradition dictates that this space in The volunteers Volunteering is a great way to do that and it opens The Actuary is usually reserved for the SOA The Actuary asked some volunteers various many doors for the volunteer. president. This is the place where we talk about questions focused on the subject of volunteer- Jerry Enoch, FSA what’s important to the profession, new initia- ing. Here’s what they said. tives at the SOA, and our potential for growth. Like many actuaries, I am feeling some com- Q: What motivates you to volunteer? petition from other professions—economists, Well, I’m breaking tradition … somewhat. I do want A: I started volunteering because my employ- statisticians, etc. To counter this, I feel the need to say a few words about the importance of volunteer- er wanted me to, due to an interest in particu- to make the profession even better so that we ing. I want to tell you that the people who volunteer lar topics and as a way to have input into those can maintain our status in the analytical and for the various positions strengthen the SOA every topics. Since then I feel that I have become a business community. day. They serve on committees and task forces. They part of a community. Through this community, Joan C. Barrett, FSA construct and grade exams and review articles for I have a way to impact what happens in the our many publications. They join sections and par- profession as well as observe up front how Q: How do you find time to volunteer? ticipate in section activities, research and educational actuarial practices are evolving. A: Volunteering can take as little or as much events. They moderate at special events and present Donna Novak, ASA time as you can devote. Everyone can contrib- papers at meetings. They serve as chairpersons, and ute in some way. You are never too busy to Board members, and volunteer for other important I feel passionate about the importance of the volunteer; it’s a mindset. positions at the SOA. I want to thank the hundreds of issues I am working on. I also feel that volun- Larry N. Stern, FSA volunteers who continue to do important work and teering has added greatly to my professional invite those who haven’t yet found their volunteering growth and been an important part of my life. I prioritize time commitments and work eve- niche to seriously think about doing so. Anna Rappaport, FSA nings and weekends. Warren R. Luckner, FSA Now I’m going to hand the microphone off, I enjoy networking with other actuaries with so to speak, to a number of our members who different backgrounds and perspectives. Being I set aside a certain amount of time for volunteer donate their time and talent to the SOA and its involved on an education committee has work. Much of the time spent can be counted many initiatives. They will tell you why volun- helped me stay grounded in the fundamentals toward continuing education credits. teering is important and vital to our growth as that I learned when taking exams. Donna Novak, ASA an organization and our growth as individuals. Jacob McCoy, FSA While I had a full-time job, I made it a priority to

Thank you for your help. Thank you for your I began volunteering for the SOA because I be able to volunteer—I made it part of my job. energy. Thank you for your gift of time. wanted to give something back to the profession. I also was able to show many of the people I

10 | The Actuary | April/May 2011 worked with the value of what I was doing. I get a sense of accomplishment by looking I believe that what I Anna Rappaport, FSA into the past to see everything that has been learned from volunteering done. e-Learning is such a dynamic process enhanced the quality of Finding time is always difficult because there are and there is so much to be proud of. the work I did for my cli- always work and family situations that need atten- Jacob McCoy, FSA ents and my employer. I Donald J. Segal tion. Like everything else, you have to prioritize. If also believe it enabled me volunteering for an exam committee is important My involvement with the Actuarial Foundation. to bring valuable ideas to the environments I to you, then you’ll find time. It truly makes me feel like I am paying it forward. worked in. Jacob McCoy, FSA Craig M. Baldwin, FSA Anna Rappaport, FSA

There is nothing like the basics of time manage- Completing goals, whether it is something as I’ve increased my actuarial contacts and my ment—setting objectives, priorities and sched- simple as coordinating a session at a meet- knowledge of my area of expertise. ules and sticking to them. ing or seeing a research project through to Mark Whitford, FSA Joan C. Barrett, FSA completion. Joan C. Barrett, FSA To keep involved I have had to become more effi- Q: What has brought you the greatest cient and stay organized. No doubt this has helped sense of satisfaction from volunteering? Q: How has volunteering helped you grow me in all aspects of my life. When you have com- A: Being able to interact with others and learn from professionally and personally? peting demands it makes you think about what is them while teaching in return. Through volunteer- A: I have learned a huge amount on techni- really important and what you have a passion for. ing I have had the opportunity to meet and work cal topics, such as IFRS and PBA. I have met Jacob McCoy, FSA with many people I would not otherwise have met. people that I think will be lifelong friends. Larry N. Stern, FSA Craig W. Reynolds, FSA It has helped me establish relationships that have lasted during my career. A sense of accomplishment and making a As a self-employed consultant, many of the Craig M. Baldwin, FSA contribution that is of value to the profession individuals I have met by volunteering have and ultimately to those who rely on our work. turned into business relationships. Many have I am much more self-confident as a result of my Warren R. Luckner, FSA become close friends. Professionally and per- volunteer work. sonally, volunteering has resulted in immea- Joan C. Barrett, FSA A When my son was in high school he Googled my surable growth. name. He got pages of references and was very Larry N. Stern, FSA Donald J. Segal, FSA, FCA, MAAA, EA, is president of impressed. Many of the references were connect- the Society of Actuaries. He can be contacted at dsegal@ ed to my work with the SOA and the Academy. Professionally, I have learned a lot from oth- soa.org. Donna Novak, ASA ers involved during the process of completing various volunteer activities. Personally, I have Volunteer here! I believe I have been able to make important learned a lot working with a variety of people with contributions to the actuarial profession, and differing personalities, and developed friendships More information about volunteering can that the work we have been doing in post-retire- I otherwise would not have. be found on the SOA website at www.soa. ment risk has made important contributions to Warren R. Luckner, FSA org/volunteer. Learn about the benefits the retirement system in the United States. of volunteering, the various ways you can donate your time, and the benefits to Anna Rappaport, FSA When you volunteer you interact with the best employers as well. A and most experienced actuaries in the profes- All the great individuals I met who were part of sion on the most important and timely topics. my speaking sessions. Donna Novak, ASA Mark Whitford, FSA

April/May 2011 | The Actuary | 11 OF AN ACTUARIAL ASSOCIATION By Tarmo Koll

Starting a new actuarial organization is not easy. Fortunately, the International Actuarial Association Advice and Assistance Committee is available to ensure the bulb of thought burns bright.

n Estonia, the new generation of life, being among the most attractive ones. nia during the independence period—from actuaries was employed by the insur- Seeing the clear need for individuals who 1918 to 1940—had their own mathemati- I ance companies in the mid-1990s due had more understanding of the business, cians, some of whom were quite well-known to pressure from the predecessor of the cur- including its theoretical mathematical in society and played an important role in the rent Financial Supervisory Authority. These background, the former Insurance Super- development of the insurance sector in Esto- young people had just graduated from the visory Authority started to put pressure on nia. One of the most well-known Estonian ac- University of Tartu, mostly as mathemati- the insurance companies to hire actuaries. tuaries of that time was Karl Saaret, who had cians, and had very limited knowledge of to leave Estonia for the United States after the real actuarial work. Estonia had regained Although there was no actuarial organization Soviet occupation. Saaret became a member its independence in 1991, and the starting formed, the profession of actuary had not of the Management Board of the George B. market economy was giving birth to hun- been completely unknown in Estonia before Buck’s Actuarial Advisory1 in New York and dreds of new companies in different eco- the Second World War. Actually, the insur- a member of the American Actuarial Acad- nomic areas—insurance, both life and non- ance companies who had operated in Esto- emy in 1965.

12 | The Actuary | April/May 2011 OF AN ACTUARIAL ASSOCIATION

April/May 2011 | The Actuary | 13 However, during the Soviet Union’s time of mentioned young people (graduates of the related to the syllabus passing levels with full “planning economy,” the actuaries were of- University of Tartu) who had been employed members being equal to the fully qualified ac- ficially not needed as the tariffs were calcu- as actuaries in Estonia participated in these tuaries in most developed organizations. lated in Moscow for the whole country. There courses and gained much of their real actu- was also no need for any kind of reserves. arial knowledge from the different, very good Of course, these self-set standards meant that Solvency and adequate pricing were not is- lecturers. It was during these courses when during the establishment of the association we sues. Therefore, the first generation of new the idea of creating the Estonian Actuarial had no full members! This was done on purpose. actuaries started from an empty field and had Society started to emerge more clearly; the We wanted to avoid the situation where the ini- to build the profession from scratch. year was 1998. The discussions concentrated tial members would have some advantage in on topics like the aim of the association, the getting the qualification just because they hap- By the end of the 1990s, most of the Eastern membership levels and qualification rules, pened to be the ones who formed the associa- European countries (who, similarly to Esto- and the different organizational issues. tion. Therefore, we decided to organize an addi- nia, had escaped from the “iron curtain”) tional set of courses and examinations and only had restored or established actuarial associa- Finally, the Estonian Actuarial Society was those who successfully passed these received tions. But this was not the case in Estonia. We created on Jan. 10, 1999. The initial 17 mem- the full member status in the society.

Today, the Estonian Actuarial Society has The size of the organization doesn’t 26 members; of them, only eight are fully matter; it’s all about the people. qualified. Of course we would like to have more qualified members. There also exists a clear demand for such people in the market, had been discussing the potential need for bers were mostly actuaries working in the but we have not made the process easier for such an organization and wanted to be abso- insurance companies of Estonia, but also in- anyone—it is as difficult as getting an actu- lutely clear what the purpose of the associa- cluded two distinguished professors of prob- arial qualification in any other developed tion would be. We did not want to create the ability theory and mathematical statistics who country. In fact, the process may be more association just to have one. Furthermore, taught at Tartu University. The Statute Book complicated; due to the small size, there is the pressure we felt from the outside world of the association established the aims of the no regular examination system. The educa- made us a little suspicious. It’s not without organization, which included the develop- tion committee of the Estonian Actuarial reason that Estonians are often regarded to ment of the actuarial profession and actuarial Society considers each membership appli- be too proud and independent to readily science; protecting the rights of its members; cation separately. A full-member status is agree to do anything that is imposed from and establishing contacts with other profes- given only if the applicant has successfully outside. This might be true; but, on the oth- sional organizations on the international lev- and completely passed the actuarial sylla- er hand, this may have helped us to survive el. From the very beginning we had decided bus. In addition, full members must have at among much bigger nations. that we wanted to build a true professional least two years of experience. organization that would satisfy the criteria of the international actuarial community. We The syllabus for Actuarial Training, which understood that the only way to do this was we updated just a year ago, is in line with the Laying The Groundwork setting hard qualification standards to be a full Core Syllabus of the Groupe Consultatif in When the U.K. Institute of Actuaries orga- member. On the other hand, we also under- Europe and the requirements of the Interna- nized actuarial schools in different Central stood that we are, and will always be, a small tional Actuarial Association (IAA). It is built and Eastern European countries, the real organization. Therefore, we needed to use all in a hierarchical way with different levels be- planning for the Estonian Actuarial Associa- the available resources. We decided to cre- ing obligatory for different membership cat- tion began. One of those schools was in Vil- ate three membership categories. In addition egories. Naturally, the requirements include nius, Lithuania, and it operated for a couple to full members, we have associate members passing the Professionalism course and ac- of years (1997–1999). Many of the above- and student members. Membership levels are quiring specific communication skills. CPD

14 | The Actuary | April/May 2011 OF AN ACTUARIAL ASSOCIATION training forms a part of the syllabus and is funds. Although the Law on Insurance Activi- For example, we would very much like our required to keep the full-member status, but ties does not mention our association, the re- members to be more involved in the risk it is not compulsory for qualifying. quirements set by it to the appointed actuary management area and include enterprise are almost one-to-one a copy of the society’s risk management subjects in our actuarial Basic topics of the syllabus are taught full member requirements. One of the biggest syllabus. Joining the global CERA Treaty is at Tartu University as part of the degree challenges for the association at the moment definitely on our next year’s agenda. We also programs in financial and actuarial math- is supporting the associate members to qual- need to keep our members active, because ematics. There is no teaching on a regu- ify so that they can apply for appointed actu- due to limited financial resources, all the lar basis for higher level topics. To cover ary positions at various companies. work in the association is done on a volun- these, the Estonian Actuarial Society has tary basis. organized the Actuarial Management Pro- It is fair to say that after 12 years in existence, gram, which consists of modules on dif- the Estonian Actuarial Society has totally prov- In spite of its small size, the Estonian Ac- ferent subjects. Many new students select en its worth and value. Today we are viewed tuarial Society has been relatively active different foreign university and European as an equal partner on the state level as well on the international level. As soon as the Actuarial Academy programs to pass the as in business. We are consulting the Ministry association was established, we started to syllabus. of Finance and the Financial Supervisory Au- prepare for becoming full members in the thority on the forthcoming legislative changes international associations. In November Today, 12 years after forming the association, and give advice on the implementation of the of 2001 we received the full-member sta- the scene has changed a lot. The current Law Solvency II regulation, just to name a few of tus in the IAA and after Estonia joined the on Insurance Activities obliges all insurance our latest activities. Within companies, actuar- European Union in 2004 we also got simi- companies to have an appointed actuary. ies are highly valued and the actuarial depart- lar status in the Groupe Consultatif. This includes both life and nonlife compa- ments consist of several people. nies. Due to the characteristics of the pension But being only an institutional member has system—the collection phase includes only The challenges we face today are, how- not been enough for our association mem- investment-related risks and no guarantees; ever, similar to those we had in the begin- bers! In 2004 we invited two of the Groupe pension payments are handled by the life in- ning. Marketing the profession and growing Consultatif committees to hold their spring surance companies—there are no formal re- in numbers are still essential. The world is meetings in Tallinn. The organization of quirements to have actuaries in the pension changing and we need to keep up to date. this event went successfully and we started Become An Ambassador For Your Country

The SOA International Section is seeking ambassadors for countries outside the United States to assist in carrying out the Society of Actuaries’ international pro- grams; identifying and developing subjects of international interest for communication to SOA members; identifying special needs of SOA members in different areas of the world; helping the actuarial profession to grow in underdeveloped areas; and function- ing as a valuable resource and link between the SOA and national actuarial organizations and actuarial clubs. Learn more by contacting Martha Sikaras at [email protected]. A

April/May 2011 | The Actuary | 15 Enter the SOA International Section’s

“Country Feature Article” Competition associations, and (or in case these have not been organized yet) the regulators, insurance Submit an article on any non-U.S. topic or topics you believe are infor- industry, local actuaries and academics. mative and of interest to our international community. Markets vary by country due to such local factors as history, economic system, regulations, consumer Typical focus areas are explaining and dis- behaviors, social values, and culture. The Country Feature Competition pro- cussing the role and importance of actuaries vides you with a forum to share your experiences, interesting facts or statistics in sound management of insurance, pension, that reflect your country’s distinctive qualities. The winning article will be pub- health, and other financial security mecha- lished in International News newsletter. Entry deadline is May 15, 2011. Learn nisms; providing advice and examples re- more at SOA.org by visiting the International Section Web page. A garding creating and nurturing a local actuar- ial association; and developing, maintaining to think about something really big. We de- one’s thinking significantly. In recent years, and operating actuarial education, creden- cided to celebrate our association’s 10th an- my personal interest has been toward involve- tial, and professionalism processes. We also niversary with a scientific conference and in ment on the IAA level. Since the beginning of facilitate formal and informal networking conjunction with that event invited the IAA 2011 I have been serving as the chairperson of with other actuaries, actuarial associations to hold its committee and council meetings the Advice and Assistance (A&A) Committee. and resources worldwide. in Tallinn in May 2009. We had more than The main role of the A&A Committee is relat- 230 delegates from all over the world. The ed to strategic objective number four of the The way we work is giving support to the local event was really memorable, and the feed- IAA, which is supporting the development, organizations. One possible vehicle has been back we received was extremely positive. organization and promotion of the actuarial organizing conferences and meeting in various This proves that the size of the organization profession in those parts of the world where it places all over the world. In these meetings, doesn’t matter; it’s all about people. is not present or fully developed. leaders of the local organizations (if they exist) or just active people who are interested in lead- To be honest, we had had some experience The A&A Committee’s objective is to pro- ing the development of the profession get to- in organizing smaller international events vide information, advice and support to lo- gether and have the opportunity to communi- before. Over the years, the Estonian Actuari- cal stakeholders, including existing actuarial cate with the international experts and others. al Society had organized several educational seminars where the students were not only from Estonia, but also from our neighbor- ing Latvia and Lithuania, and the lecturers had come from the United Kingdom, United States, Italy, Germany and other countries. We had seen the need for cooperation with, and help from, the more developed actuarial associations. With organizing the IAA meet- ings in Tallinn, we express our thanks to the worldwide actuarial community for helping us in the previous years.

Helping Others Get Started Although there is a lot more to do in Estonia, working on an international level broadens The University of Tartu in Tartu, Estonia

16 | The Actuary | April/May 2011 OF AN ACTUARIAL ASSOCIATION

Our role is to support the local actuarial de- come a full member in the IAA. Many velopment and resources, not to design, in- people in the IAA have been involved stall or operate an actuarial association for in this process, which now has reached someone. The structure we are operating its end. With the newly established Asia with consists of the parent committee with subcommittee, we are working to fo- regional subcommittees to focus on the most cus on the other actuarially developing active areas of the globe (China, Africa, Asia, countries in the region. A and Latin America). In addition, we have the IAA Fund Subcommittee which focuses on Tarmo Koll is chairman, Advice and Assistance Com- organizing and supporting informational and mittee, IAA. He can be contacted at [email protected]. seminal meetings—locally or regionally. ENDNOTES 1 http://www.referenceforbusiness.com/ Definitely, one of the biggest successes over history2/20/Buck-Consultants-Inc.html. the last years has been helping to develop the actuarial profession in China and guid- ing the China Association of Actuaries to be-

THE SOA IS PILOTING A MEETING APPLICATION to be used on mobile devices (e.g., BlackBerry, iPhone). This “app” will be offered for the Health Meeting, June 13-15 in Boston, and will provide attendees with access to important features of the event, including session information, speakers, handouts and more right from their mobile devices.

April/May 2011 | The Actuary | 17 18 | The Actuary | April/May 2011 By Steve Siegel

What are the most significant housing issues affecting retirees? Is paying off a mortgage still important? These questions and more are what recently led a roundtable panel to address hous- ing in retirement issues.

t doesn’t seem all that long its impact. Sensing the importance of hous- found on the SOA website at: http://www. ago when the conversation in my ing to current or near-term retirees, the soa.org/housingwealth. neighborhood focused on whose home Society of Actuaries Committee on Post-Re- tirement Needs and Risks completed a call The Committee’s focus on housing is moti- remodelingI contractor did the best work and where you could go to find the latest in kitch- for papers on housing in retirement. The vated by the fact that non-financial assets, en countertops. Now, the talk on the street is resulting papers appear in a monograph primarily housing, are about 70 percent of how many more times the sales price on that that provides varied perspectives on hous- the assets of middle-income Americans age house down the block is going to be reduced ing and retirement issues of concern to 55 to 64, excluding the value of Social Secu- with no offers in sight. What a difference a financial professionals, policymakers and rity and defined benefit plan pensions, and housing bubble makes! homeowners, among others. The papers furthermore that housing is typically the larg- in the monograph explore issues includ- est overall item of expense for retirees. With the housing bubble negatively af- ing the role of housing wealth in financing fecting a wide swath of Americans, retirement and recent trends in the use of To supplement the papers and further ex- many retirees have certainly felt housing wealth. The monograph can be plore this topic, several of the paper authors

April/May 2011 | The Actuary | 19 and discussants were invited to partici- THE DISCUSSION BEGINS years in retirement, the use of home equity pate in a round table discussion held by The following is a synopsis of the questions will most likely become more prevalent. Ep- conference call. The roundtable discus- that were posed in the roundtable and the stein noted that there is an opportunity to sion was intended to result in a lively resulting discussion. develop new products that will help to meet exchange of ideas and thoughts on these these needs for guaranteed lifetime income. issues. And, I’m happy to report, we were Q: What are the most important housing In developing such products, industry pro- not disappointed! issues affecting retirees? fessionals will have to contend with a behav- ioral factor that Cooperstein noted—people ROUNDTABLE PARTICIPANTS A: Overall, panelists suggested the heteroge- love to have control of their money and are The round table included the following par- neity of retirees drives many of the housing hesitant to give it up. ticipants: issues that are faced, and the importance of a particular issue to an individual retiree will Q: Is paying off a mortgage still an Steve Cooperstein, FSA—an independent vary based on this differentiation. In other important financial strategy for retirees? actuary focused on creating new products and words, a retiree at an early stage of retirement services for the financial services industry. will have a different set of issues to deal with A: Reiterating the theme of heterogeneity, than someone who has been retired for a sig- panelists felt that one size does not fit for all Chuck Epstein—an independent financial nificant amount of time. This heterogeneity retirees in terms of paying off a mortgage. Ze- writer. also surfaces whether a retiree wants to stay dlewski noted that according to the Health put or move housing locations, and on the and Retirement Survey (HRS), fewer than Tom Herzog, ASA, MAAA—chief actu- level of financial resources. Rappaport noted half own their homes without a mortgage ary of the Federal Housing Administration that the location of housing has a direct im- above age 55. She was concerned about at the time of the roundtable and currently pact on quality of life as it dictates access advice suggesting not to retire until a home with the National Association of Insurance to activities, families, support systems and is owned outright, when having a mortgage Commissioners. transportation among other considerations. and financing that cost in retirement was Following up on this, Redfoot suggested that a legitimate part of a retirement plan. Coo- Anna Rappaport, FSA, EA, MAAA—chair for those who want to stay put, much of their perstein also felt that a mortgage payment of the Committee on Post-Retirement Needs quality of life may be dependent on housing could be a realistic part of a retiree’s budget. and Risks and an actuary. She served as choices that were made decades ago. Other participants agreed that it depends on moderator of the discussion. individual situations, but in an ideal world, Besides the importance of the connection a mortgage would be paid off. Capping off Don Redfoot—a senior policy advisor with between housing and location, Tomlinson the discussion, Herzog noted the desirability the AARP’s Public Policy Institute. noted that, going forward, an issue becoming of paying off a mortgage before retirement more relevant is the need to tap into home which alleviates the potential risk of being Joe Tomlinson, FSA, MAAA—an actuary equity for income. As retirees spend more subject to fraud from unscrupulous lend- and financial planner. continued on page 22

Sheila Zedlewski—director of the Income and Benefits Policy Center at the Urban Institute. Join a Section The SOA Pension Section keeps those interested in and impacted by Zenaida Samaniego, FSA, MAAA—chief pension issues up to date on the latest news and happenings. Join the Pen- actuary of the U.S. Department of Labor, sion Section today to receive the monthly e-mail bulletin and our quarterly participated in an online discussion that pre- newsletter. Visit SOA.org/pension and click on “Join a Section.” A ceded the conference call.

20 | The Actuary | April/May 2011 Recent Developments in Reverse Mortgages By Don Redfoot

In 2007, nearly 80 percent of people age 65 and • Fannie Mae’s share of HECM purchases has precipitously declined older owned their homes—almost two-thirds (64.5 percent) of until they announced recently that they would no longer purchase whom had no mortgage debt. Collectively, older homeowners such loans. have been estimated to have approximately $4 trillion in home • In the absence of Fannie Mae funding, Ginnie Mae mortgage- equity, which for most homeowners substantially exceeds their backed securities have become the sole means of funding financial assets. HECM loans. • In marked contrast to Fannie Mae loans, over 70 percent of Ginnie Reverse mortgages have received considerable attention in recent Mae HECM loans have been fixed-rate loans where the borrower years as a way to tap this home equity to meet various financial must take out the full principal limit at closing. needs in retirement. A reverse mortgage is a loan secured by the • FHA has increased the ongoing mortgage insurance premiums by home owner that requires no repayment until the last borrower 150 percent and reduced loan limits by 11- to 15-percent over the moves permanently, sells the home, or dies. Such loans are gener- past two years. ally non-recourse loans where neither the borrower nor their heirs • The loan limit reduction has been offset to some degree by a reduc- will owe more than the home is worth. tion in the assumed minimum interest rate from 5.5 percent to 5.0 percent. Loans insured by the Federal Housing Administration’s (FHA) Home • FHA has also announced a new “HECM Saver” loan, which essen- Equity Conversion Mortgage (HECM) program constitute over 90 per- tially eliminates the hefty upfront mortgage insurance premium of cent of all reverse mortgages that have been made. Since the program 2 percent of the home value in exchange for loan limits that are began insuring loans in 1989, over 660,000 loans have been made— 10- to 18-percent lower than standard HECM loans. roughly 500,000 of which are still in force. Since, until recently, Fan- nie Mae purchased the vast majority of loans and held them in its HUD is hoping the new Saver loan option will reverse the sharp decline portfolio, it set interest rate margins and established the terms of the (40 percent) in loan volume over the past year and reduce the risk to the loans—all of which were adjustable rate loans that were iterations of FHA mortgage insurance fund without the need for further reductions in a line of credit. loan limits or an unlikely credit subsidy from Congress. The coming year will be critical in determining if reverse mortgages remain a viable finan- Because of the collapse of mortgage markets in the past two years, a cial tool for older homeowners. A number of changes have radically affected the reverse mortgage market: Don Redfoot is a senior policy advisor with the AARP’s Public Policy Institute. He can be • The small number of non-HECM loans geared to the jumbo market contacted at [email protected]. have disappeared.

April/May 2011 | The Actuary | 21 plicated—loan proceeds do not count as in- come, but they may count against the asset test if they are not spent immediately.

Q: Are reverse mortgages a viable prod- uct for the future—why or why not? How can they be improved?

A: Epstein opened the discussion with the opinion that reverse mortgages are viable, in theory, for the future, although more products and competition are needed. Redfoot agreed that better product development and com- petition would help to bring the cost down from the current situation today and increase viability. Furthermore, he mentioned that hav- ing the credit markets return to a normalized state will be important. Overall, he felt that until costs come down on reverse mortgages and there is some product innovation, it will remain a niche market. (See sidebar on pg. 21 ers. The decision to pay off a mortgage can reverse mortgages to tap home equity with- for more information.) be viewed as an investment decision, but it is out moving. also linked to the need for steady long-term in- Q: What is the impact of fraud and im- come. It should also be noted that many of the Another option for securing home equity is to proper loans on retirees? mortgage products today may require increas- sell the house outright. Tomlinson mentioned ing payments in the future, balloon payments, that many of his clients downsize and move A: Herzog opened the discussion on fraud by or rollover to new mortgages and these prod- to a smaller house to use their home equity. noting that much of this is driven by the pub- ucts could be troublesome for retirees. Redfoot also noted that selling the house may lic’s lack of financial knowledge. In addition, be a way of financing assisted living or skilled the elderly may be particularly ripe for preda- Q: What options are available for using nursing care with home equity applied in this tory loans, especially if they have not paid off housing equity in retirement and how ef- way. However, planning to sell the house at their mortgage in retirement. Redfoot further fective are they? a time of future need is quite risky in a world noted that retirees are particularly targets of when home values go up and down and fraudulent activity because they have typically A: Panelists discussed some of the traditional where it can take a long time to sell a house. built up substantial home equity, often with a options for using home equity via home eq- And if the house is not well maintained, that combination of high home values and low in- uity loans and lines of credit without leaving will cause the value to go down. come. Because of the low income, they do not the home. These two options could be used qualify for regular loans, but rather are driven to obtain home equity for a variety of pur- Finally, Zedlewski mentioned that some will to predatory-type loans which can set into mo- poses and to help support retirement needs. go on Medicaid to obtain long-term care ser- tion a downward spiral of equity stripping. Although these vehicles were effective in the vices in retirement. Depending on the state, past, one aftermath of the housing bubble is home equity might be recovered by the Tomlinson mentioned another aspect of fraud that they are much more difficult to secure state after you pass away. In terms of reverse or misunderstanding may be the myriad of now. As a result, Zedlewski thought that more mortgage use, Redfoot said the whole issue product variations for mortgages that are home owners may be driven to try to obtain of Medicaid and long-term care is very com- made available. By offering more choice, op-

22 | The Actuary | April/May 2011 portunities for fraud are opened because of savings at different income levels. This led less for retirement and putting more or the lack of standardization and uniformity. Rappaport to raise a related issue of whether less savings into a house. Cooperstein capped off the fraud discussion home ownership should continue to be en- • Innovative products to optimize use of by further emphasizing the vulnerability of re- couraged at the possible expense of other home equity. tirees in the face of fraud. With retirees typical- types of savings. She pointed to the need for • Information to help evaluate the pros ly unable to replenish assets lost through fraud people to balance how much money they put and cons of paying off a mortgage ear- because of limited earnings potential, the im- in their homes versus their retirement funds, ly, and on choosing different types of pact of fraud can be particularly devastating. and for the need for tools to help people evalu- mortgages. ate the trade-off. In this regard, Herzog pointed • Educational material to evaluate the Q: Based on the recent events, what out the danger of concentrating too much sav- appropriate use of reverse mortgages are the most important implications for ings into housing—it’s possible to lose a great and their impact on long-term finan- policymakers, practitioners and related deal as the housing bubble proved. A lesson cial security in retirement. financial professionals? that, unfortunately, too many retirees and oth- ers have learned the hard way. FOR FURTHER INFORMATION A: In closing, Epstein led off with the obser- The Committee on Post-Retirement Needs vation that housing in retirement is indicative AN ACTUARIAL PERSPECTIVE ON and Risks is grateful to the participants for of a broader issue that stakeholders should NEXT STEPS their insightful comments and thought-pro- concern themselves with—the future of retire- It is clear from the discussion that there are voking discussion. Interested readers are en- ment, in general. Related to this, Redfoot not- a number of challenges to making housing couraged to read the full transcript from the ed an important policy question concerning decisions in retirement. Given the issues sur- roundtable available at: http://www.soa. retirement is whether there would be further rounding housing in retirement, how might org/housingresearch. A shifting of risk to individuals as public pro- the actuarial profession become involved grams are cut. In terms of housing, Zedlewski and assist in decision making? Possibilities Steve Siegel, ASA, is a research actuary for the Society raised the possibility of potentially major tax that may tap actuarial talent include: of Actuaries. He can be contacted at [email protected] reform in the near future. The policy questions here include how home ownership would be • New planning tools to help evaluate treated by the tax code as well as retirement the pros and cons of saving more or

April/May 2011 | The Actuary | 23

Are You getting ready for Change? By Sam Gutterman, Tessie Johnson and David Legge

International and U.S. accounting standard setters are hard at work rewriting the rules governing insurance contracts. Given the re- sources demanded by short term concerns, including both the economic environment and regulatory reform, what are insurers doing now and what should they consider doing in the near future?

he financial reporting en- joined this project in 2008 with the objective be adopted. In February 2011, the FASB took a vironment for insurance compa- of developing a joint standard with the IASB. step toward achieving convergence by voting T nies is about to enter a new stage in To further this goal, (1) in July 2010 the IASB unanimously to move forward jointly with the its evolution, this time led by the Internation- issued a proposal for the future accounting of IASB to pursue the development of accounting al Accounting Standards Board (the IASB, insurance contracts in the form of an exposure for insurance contracts that would improve ex- author of International Financial Reporting draft, seeking comments from a wide range of isting U.S. GAAP and converge with IFRS. Standards or IFRS). A new international fi- stakeholders, and (2) in September the FASB nancial reporting standard for insurance issued a separate discussion paper of its pre- Many aspects of these proposals continue to be contracts is expected to be finalized by the liminary views1 based on the IASB’s proposals, debated by the two boards and have been in- IASB in June 2011, with implementation pos- supplemented with additional FASB-specific fluenced by the significant amount of feedback sibly three or four years later, although this perspectives, seeking input into their decision- received from their public outreach activities period has yet to be determined. making process from its stakeholders. During and the comment letter process. However, the the boards’ respective public comment peri- FASB’s vote is an important milestone that af- Importantly for insurers currently reporting un- ods, many respondents strongly urged that if firms its intent to overhaul the current U.S. GAAP der U.S. GAAP, the Financial Accounting Stan- the ultimate goal in the United States is conver- insurance accounting model. The purpose of dards Board (the FASB, author of U.S. GAAP) gence with IFRS, a common standard needs to this article is not to describe the details or ex-

April/May 2011 | The Actuary | 25 plore arguments underlying these proposals. which are outside the scope of this article. A ciated with the expected cash flows; and Rather, it is to describe how life and health in- separate approach has been proposed for cer- • The amortized amount of a residual mar- surers have been preparing for the inevitable tain short duration contracts, such as group gin, which at issue is determined as the and fundamental changes involved. term life and health insurance, which is not present value of expected cash flows, described here. 2 less the adjustment for the risk, if positive. Summary of the proposals Proposals from both the IASB and FASB, The current estimate is made up of the IASB’s The most significant difference between the which have a great deal in common, would es- building blocks that are updated at each re- IASB exposure draft and the FASB discus- tablish a common measurement approach for porting date during the contracts’ coverage sion paper is that the FASB’s building block the large majority of life insurance and annu- and claims periods and consists of the follow- model includes a single composite margin ity products, often referred to as the building ing components: that at issue is equal to the sum of the IASB’s block approach. Its underlying concept, a cur- • The expected value of the cash flows adjustment for risk and residual margin. This rent estimate of the liability for a portfolio of within the existing contract boundaries; composite margin would be amortized using insurance contracts, is fairly straightforward— • A discount of the expected value associ- a prescribed formula, whereas the explicit ad- although it also incorporates many complex ated with the time value of money; justment for risk would be re-measured each provisions and implications, explanations of • An explicit adjustment for the risk asso- period and the residual margin only re-mea-

Status of IFRS in the United States

The SEC has the legal authority to establish gener- ued focus on enforcement. Because there are many finan- ally accepted accounting principles for the U.S. capital mar- cial and political factors at play, it is anyone’s guess as to kets. In November 2008, the Securities and Exchange Com- what the future holds and what the final timing of IFRS in mission (SEC) issued a proposed “Roadmap” for a possible the United States may be. path to the adoption of IFRS in the United States. The SEC received over 200 comment letters on the Roadmap. Although insurers will be greatly affected by the proposed financial reporting changes for insurance contracts, it is In February 2010, the SEC held an open meeting to ad- not the only significant change looming on the horizon. vance the dialogue of incorporating IFRS into the finan- Perhaps the most important is the joint project by the IASB cial reporting system for U.S. issuers. At the meeting, the and FASB to change the accounting model for financial in- SEC unanimously agreed to publish a statement of contin- struments (for example, invested assets and derivatives), ued support for a single set of high-quality global account- which is proceeding with much fanfare and controversy. ing standards and acknowledged that IFRS is best posi- Both the insurance contracts and financial instruments tioned to serve in that role. The SEC stated that if it moves projects are part of a wider convergence plan under forward with IFRS, U.S. issuers would not be required to which both boards agree to draft, debate and issue simi- report under IFRS until at least 2015 or 2016. lar accounting standards. However, significant differences of view remain and the extent to which convergence will In December 2010, the SEC chairman, Mary Shapiro, con- really be achieved is as yet unclear. If the IASB and the firmed that the SEC will be in a position to make its deci- FASB agree on converged standards for both insurance sion by the end of 2011 and, if the decision to incorporate contracts and financial instruments, the SEC’s decision on IFRS is made, the SEC will allow for at least a four-year whether to move to IFRS may be proven to be less of an transition period. IFRS is only one of many challenges the impact compared to other industries, as insurers will have SEC currently faces, including coming to grips with the been, in essence, converged in their most significant fi- recently passed financial regulatory reforms and a contin- nancial reporting areas. A

26 | The Actuary | April/May 2011 Are You getting ready for Change?

sured if contract persistency is worse than IFRS. Importantly, insurers will need to evalu- Many insurers are actively monitoring the FASB expected. This difference can have important ate the proposed changes to insurance ac- and, if applicable, IASB’s ongoing deliberations consequences for both the timing of profit counting in conjunction with other IASB and during 2011. Some of these have formed small recognition and future earnings volatility. Un- FASB standards and exposure drafts, particu- task forces to analyze the boards’ actions, read der either of the boards’ proposals, the future larly the proposed changes to accounting for and respond to draft standards, and participate insurance measurement model is expected financial instruments as mentioned earlier. in industry lobbying groups. Actuaries have an to result in greater earnings volatility and dif- To date, the number of companies that have important role to play, not only in staying in- ferent profit emergence compared to today’s taken an integrated approach to evaluating formed of developments, but also in engaging approaches, especially because of its greater the impact of these changes on both the asset with senior management and helping to drive emphasis on current estimates. … adoption of the IASB, FASB or other fore- For those familiar with general purpose fi- nancial reporting, both proposals—and any seeable alternative proposals will require a further changes that may occur prior to the significant effort. … IASB issuing a final standard in June—repre- sent a significant change from existing meth- odology, whether an insurer currently reports and liability sides of the balance sheet have the call to alert and action within their organiza- under U.S. GAAP, IFRS or another accounting been limited. tions. Although time now appears quite short to basis. Insurers that currently report under influence the remaining joint IASB/FASB delib- IFRS will clearly be subject to the IASB’s pro- Because there is significant uncertainty erations, as previously noted the FASB will need posed standard, including U.S. subsidiaries of regarding both content and timing of an to reexpose their proposals for public comment European or Australian parents and insurers insurance contract standard for U.S. GAAP, prior to issuing a final standard, thus providing domiciled in countries transitioning to IFRS, companies face difficult resource deci- another opportunity to influence the future of such as Canada, South Korea and Brazil. sions in determining how they should be- U.S. GAAP, both individually and through affili- However, it is not yet clear how or when U.S.- gin to prepare for these changes. The ap- ated industry and professional groups. Recent based insurers will be affected, due to uncer- proach may differ depending on whether board deliberations indicate that the standard tainty regarding, (1) whether and when the insurers currently report under IFRS, or are setters are listening to their constituents’ con- FASB may adopt a version of the IASB’s final U.S. GAAP preparers, and how quickly and cerns and in many cases have shown an ap- standard for insurance contracts, and (2) how far they believe the FASB will drive to- parent willingness to change their position as whether the Securities and Exchange Com- ward convergence. What is clear, however, demonstrated in other projects. Given the con- mission (SEC) may in due course adopt IFRS is that adoption of the IASB, FASB or other troversial nature of many of the proposals for as a replacement for U.S. GAAP. foreseeable alternative proposals will re- insurance contracts, the actuarial profession quire a significant effort, not just by the should take advantage of this opportunity to Current activity actuaries and accountants, but also their provide focused and thoughtful leadership to Those companies that reacted early to the business partners, including IT, risk man- their firms as well as the insurance industry. possibility of IFRS conversion by undertaking agement and treasury. initial assessments in 2008 and 2009 have gen- Expected future activities: erally put these activities on hold. Instead, the The extent of action among insurance com- evaluating the impact of change focus has shifted to a more limited approach panies to date has varied significantly. Al- U.S. insurance companies currently reporting centered on a core list of emerging FASB and though most insurers have begun to dedicate under IFRS typically do so to support consoli- IASB projects under the broad umbrella of resources to monitoring developments, and dated group financial reporting requirements accounting convergence. This approach rec- some have performed a preliminary high-level of parent companies located overseas. These ognizes that U.S. insurers are about to enter assessment, very few have taken a deeper dive U.S.-based operations usually rely on the par- a period of fundamental financial reporting and begun to model the impact on products, ent organization to drive the group’s response change, regardless of whether the SEC adopts performance or processes. to significant financial reporting changes. As

April/May 2011 | The Actuary | 27 such, the subsidiary’s role tends to be one of While there has been a great level of interest help or to expand their current in-house re- compliance—making sure that the parent’s and activity from the industry in the standard sources. directives are properly executed and embed- setting process, companies should now begin ded within the organization. So far, this ap- a more comprehensive analysis across a wide Impact on existing projects proach seems to be the model that U.S. sub- range of business activities. Companies have begun to reevaluate exist- sidiaries are following for the IASB’s proposed ing projects to determine whether their scope insurance contracts standard. However, only Resource considerations and timing should be modified in light of IASB a few U.S. subsidiary teams are becoming ac- Insurers will need to evaluate the adequacy of and FASB developments. For example, many tively engaged with their parent management their current resources to implement and sus- insurers have transformational projects under- to ensure that the wide-ranging implications tain the proposed changes. In particular, the way intended to improve the effectiveness and of the IASB’s proposals on U.S. operations are demands on the actuarial function are likely to integration of the financial reporting process fully understood and adequately evaluated, increase significantly; some companies have across business functions. The modification even though there may be significant report- expressed concern that the added workload or replacement of legacy systems could result in significant re-work and future cost if today’s Insurers will need to evaluate the adequacy solutions have not adequately considered to- morrow’s challenges. The impending changes of their current resources to implement and have motivated some insurers to evaluate their sustain the proposed changes. current state of reporting. For example, those companies that already struggle with current U.S. GAAP reporting processes may believe ing consequences, particularly for products may place a strain on their ability to adhere this platform is not a sustainable starting point such as universal life and variable annuities to their close process and reporting timetable from which to drive future change. These com- and other types of spread business. Further- that have almost inexorably shortened over panies have begun to invest time and money more, the U.S. parents of overseas subsidiar- the years. Much of this concern stems from the into identifying “easy wins” that can begin to ies will need to make sure they exercise ap- expanded volume of data that actuaries will relieve pressure without over-committing in an propriate oversight of their IFRS subsidiaries. need to process, as well as the extensive mod- uncertain environment. This is important not only to ensure that the eling that will be necessary to set actuarial li- overseas locations are taking appropriate ac- abilities rather than just to test their adequacy. Given the significant uncertainty surrounding tions and will be compliant with IFRS, but this the FASB’s proposals, it is impossible to plan may also provide the U.S. parent with use- Actuaries have often become the de facto for all contingencies and probably unwise to ful insights that can be leveraged to assist in owners of data and therefore spend a signif- lock into a single course of action. Neverthe- adoption of U.S. GAAP changes. icant amount of time scrubbing or modify- less, in many instances these projects do not ing source information prior to performing appear to have adequately considered the po- U.S. GAAP-only preparers may have the lux- valuations. Accordingly, as many insurers tential state of future GAAP. In contrast, IFRS ury of being able to wait a while for further have been moving toward an increased use preparers can choose to delay significant final direction from the FASB before taking com- of data warehouses or a centralized data project or investment decisions until mid-2011 prehensive action. Not surprisingly, most U.S. strategy, actuarial input will be an increas- when the IASB’s expected issuance of a final insurers are taking a “wait and see” approach. ingly important factor in helping compa- standard will provide more clarity. In general, U.S. GAAP preparers have not yet nies meet the expanded reporting require- begun to formally evaluate the impact of the ments. Many companies will need to hire Implications for products and FASB’s proposals on internal resources, sys- external advisors to assist with these further performance tems and data, or products. However, even in implementation efforts (whether from a Most companies view future financial report- this uncertain environment, companies—and technical or project management perspec- ing change through a compliance-oriented actuaries—can begin to take tangible steps to tive), but so far most appear to be deferring lens. While this is clearly a primary objective, prepare for change. any decision on whether to engage outside insurers should also think and plan more

28 | The Actuary | April/May 2011 Are You getting ready for Change?

broadly about how the IASB and FASB pro- necessary to make informed decisions re- debate. Those companies best positioned for posals might affect product pricing and design garding risk and capital. change have begun to communicate with in- from a business perspective. For example, in- ternal stakeholders, educate management on creased earnings volatility and use of a lower Many parent companies of U.S.-based IFRS pre- the potential magnitude of change, and lay the discount rate could make spread-based prod- parers are domiciled in the European Union foundations for eventual convergence. While ucts less attractive to some insurers. Similarly, and in 2013 will be subject to Solvency II, a this engagement takes time and effort, it is an the proposals to immediately expense non- comprehensive regulatory regime that will in- investment well worth making and could ul- incremental acquisition costs may incentivize tegrate capital requirements and risk manage- timately save significant pain and cost in the insurers to move increasingly toward variable ment into a single EU-wide regulatory frame- future. In this period of uncertainty one thing compensation structures for sales agents. Both work. The companies that will need to comply is clear—actuaries will continue to be at the pricing and reserving actuaries have a role to with Solvency II have already initiated detailed center of this perfect storm. A play in evaluating the proposals from a busi- work plans and have begun to develop the ness perspective. To date, very few U.S. com- necessary capital models. Interestingly, how- panies have modeled the effects of the IASB or ever, it appears that these companies have not Sam Gutterman, FSA, FCAS, MAAA, is director and con- FASB’s proposals on their existing or planned yet integrated consideration of expected finan- sulting actuary, Chicago office of PricewaterhouseCoopers, products to explore business alternatives. cial reporting changes for insurance contracts LLP. He can be contacted at [email protected]. Those U.S. companies that have performed into their work efforts for Solvency II. Although Tessie Johnson is partner, Accounting Advisory, Chi- preliminary modeling have also used this ex- the two work streams are separate and distinct, cago office of PricewaterhouseCoopers, LLP. She can ercise as a way to identify data gaps and exist- a significant overlap exists. Both are focused be contacted at [email protected]. ing systems limitations. In contrast, some Eu- on a more market consistent approach than ropean life insurers appear to be further along current U.S. GAAP and will require significant David Legge is director, Accounting Advisory, Philadelphia with their evaluations and have been shying modifications to data, systems and modeling. office of PricewaterhouseCoopers, LLP. He can be reached away from heavy savings contracts, such as Accordingly, U.S. insurance companies cur- at [email protected]. annuities, because of the proposed approach rently supporting Solvency II initiatives should to discount rates. look for opportunities to potentially leverage ENDNOTES 1 The boards are required to issue an exposure synergies. Similarly, few U.S. life insurers have draft before a final standard can be issued. As a Other business impacts yet to integrate their planning efforts relating result, the FASB will be required to publish an For those insurance companies that have to the introduction of the principle-based ap- exposure draft prior to adoption of a final U.S. implemented enterprise risk management proach to reserving for statutory accounting GAAP standard. (ERM) programs or use economic capital purposes and revisions to IFRS or U.S. GAAP. 2 A modified approach has been proposed for modeling (ECM), the proposals may provide contracts with a coverage period of 12 months an opportunity to further integrate these ac- A pragmatic call to action or less. A liability would be established over tivities with the financial reporting process. U.S. insurers find themselves at a crossroads the coverage period equal to the unearned net premium (that is, the amortized value of the However, even those insurers with sophisti- in 2011. Not only are they faced with poten- expected present value of premium less incre- cated ERM programs have generally not yet tially transformational changes to financial mental acquisition costs), with any claims liabil- taken steps to assess the impact of future ac- reporting, they will also face the impact of ities determined according to the basic building counting change on risk appetite, risk mitiga- regulatory reform under the Dodd-Frank Wall block measurement approach (excluding a tion or economic capital needs. While it may Street Reform and Consumer Protection Act residual margin). be too early to make meaningful changes, and will need to follow the NAIC’s initiatives insurance companies should begin to assess on solvency modernization. While the vast whether their ERM or ECM programs are cur- majority of companies are taking an appro- rently prepared to react to the developing priately cautious approach and waiting for insurance contracts proposals and therefore further clarity, particularly from the FASB, all able to provide management with the data insurers have an opportunity to engage in the

April/May 2011 | The Actuary | 29 Continuing Professional Development The 2009–2010 Attestation Cycle has Closed. Now what?

By Emily kessler

First, a giant THANK YOU to all SOA to give everyone additional time to adjust to Electronic attestation of CPD compliance will members who attested their CPD compliance the requirement’s provisions. This includes remain open until May 31. After May 31, on- status by Feb. 28, 2011. We appreciate your delaying the disclosure, in the directory, of line attestation will be closed, and you will diligence in keeping up with the SOA CPD members as “Non-compliant” for members be required to call SOA customer service at Requirement. The SOA Board adopted the who did not attest compliance with the SOA 888.697.3900 to have your status changed. If CPD Requirement to increase the value of the CPD Requirement. you have any questions about the SOA CPD SOA credentials to peers, colleagues, employ- Requirement or attestation, you can contact ers and other professionals involved with the If you have not yet attested CPD compliance, SOA customer service at the number above actuarial profession. you can still attest online. Just follow these or [email protected]. simple steps: Members might have already noticed that If you met the SOA CPD Requirement for the SOA membership directory was changed 1. Log on to the SOA membership direc- 2009–2010 and have already attested you in March. The membership directory now tory and click the SOA CPD Require- can relax … until November, when the new has a category titled “SOA Continuing Pro- ments button on the main page. attestation cycle will open for the 2010–2011 fessional Development Requirement” under period. We anticipate that the attestation cy- which we list your compliance status with 2. Indicate whether you have met the cle will open on or around Nov. 1, 2011 and the SOA CPD Requirement for the CPD cycle SOA CPD Requirement. close on Feb. 29, 2012. Keep earning those just ended (2009–2010). For members who CPD credits, keep track of what you’re earn- attested compliant (or who are new SOA 3. Identify which method of compliance ing and you’ll be all set when CPD attestation members and deemed compliant), your SOA was used. rolls around again! A CPD Requirement status is shown as “Compli- ant.” Members who are eligible for reduced Members who have not indicated compli- Emily Kessler, FSA, EA, FCA, MAAA, is senior fel- dues on account of retirement are shown ance with the SOA CPD Requirement by low–Intellectual Capital, at the Society of Actuaries. as “Retired” (unless you voluntarily attested April 30 will have their status automatically She can be contacted at [email protected]. compliance). Those members who attested changed to “Non-compliant.” Members “Non-compliant” will find their status shown who are “non-compliant” with the SOA as “Non-compliant.” Finally, for those mem- CPD Requirement still maintain their SOA bers who haven’t attested compliance, the designation, and are still members in good membership directory displays your status as standing, as long as they comply with the “Pending.” We recognize that the SOA CPD provisions of non-compliance (as outlined Requirement is new to members and want in Section A.2.e).

30 | The Actuary | April/May 2011 An Enterprising Approach to Risk.

Learn more about the CERA credential at www.ceranalyst.org/CERA-News Education Broadening ERM Horizons

By Steve Eadie

The new CERA pathway and For candidates pursuing an FSA on tracks The task force, consisting of Education expanded ERM opportunities other than Finance/ERM there will now volunteers with varying practice area for SOA candidates be an option to learn ERM and receive backgrounds, completed a careful review the CERA credential. This change has and recommended two key changes to On March 7 of this year, the Society been made in response to a demand the current SOA approach to CERA. of Actuaries’ (SOA) Board of Directors from employers and candidates for a approved exciting enhancements for the mechanism by which future actuaries First, a new model for the SOA’s CERA pathway to the CERA (Chartered Enterprise can acquire significant skills in pathway should be adopted. In addition Risk Analyst) credential and moved to both their practice area and in ERM. to ERM syllabus topics, the CERA Global expand Enterprise Risk Management Candidates will continue to be able Association requires that CERAs meet the (ERM) learning opportunities in all tracks to choose a route to FSA that includes International Actuarial Association (IAA) for candidates pursuing fellowship. The only their chosen track or the new ERM definition and requirements for being approved changes will meet the needs pathway that results in both an FSA a Fully Qualified Actuary (FQA). These of candidates and employers seeking to and CERA. requirements comprise a list of topics that acquire ERM skills and help the SOA more are viewed as essential for all actuaries efficiently deliver comprehensive ERM The changes to the CERA pathway are and are a subset of the SOA’s current education. also positive developments for FSAs and requirements for associateship. Because ASAs seeking a CERA credential. The the SOA’s new ERM exam will have an At the heart of these changes will be focused approach of the ERM exam will exclusive ERM focus, the Fundamentals a new ERM-focused examination. This provide the requisite education in a more of Actuarial Practice (FAP) course will be exam will reflect the considerable strides efficient framework. added to ensure that the FQA requirements that have been made in the ERM arena in as established by the IAA continue to the past few years and provide the SOA Task Force Recommendations be met. Additional benefits of adding with the opportunity to create specifically In response to candidate interest in the FAP course are that it incorporates designed ERM courseware rather than obtaining the CERA credential, a growing practical applications and it provides a a syllabus collected from a variety of recognition of the CERA among employer strong introduction to ERM, allowing the sources. As part of the new CERA pathway groups and the knowledge the SOA has fellowship-level ERM course to start at a and the Finance/ERM fellowship track, the gained from the recent review of other higher level. In addition, as ERM looks at ERM exam will exhibit an exclusive ERM organizations’ CERA pathways, a task force the entire organization’s financial structure, focus, with a general scope appropriate was formed to consider opportunities for it is appropriate to add VEE Corporate for all practice areas. changes to the SOA’s CERA requirements. Finance to the CERA requirements.

32 | The Actuary | April/May 2011 Second, all SOA tracks should include will be balanced against the goal of a created and approved an option that enables candidates to simplified transition. by the SOA Board in obtain the CERA credential on the way to 2007. At that time, the fellowship. The task force concluded that The pathway changes set out by the Board mandated that it would be acceptable for this option, Board will also ensure that the SOA the new credential be in total, to require some additional maintains its position at the forefront of a subset of the existing Steve Eadie examination hours, but not as many as ERM education. The new pathway for the Finance/ERM Track for fellowship. The currently result from adding the CERA SOA’s CERA will align well with the CERA new CERA pathway is based on the components from the Finance/ERM track. Global Association standard and provides concept that a candidate must meet both The task force and the SOA Board were an effective delivery of the necessary the requirements to be a fully qualified comfortable with the additional hours learning objectives. actuary as defined by the IAA and the for the CERA option because those who global CERA syllabus requirements. The choose the option receive both the FSA CERA Pathway Comparison: SOA’s original CERA requirements and designation and the CERA credential. Original and Enhanced the newly approved requirements are The CERA credential was originally shown below. Benefits The SOA’s Advanced Finance/ERM (AFE) Original CERA Pathway exam (the key ERM exam in the current CERA pathway) is a six-hour exam with a significant portion devoted to non-ERM Exam P Exam MFE topics. The new ERM exam will be four hours in length, providing a more focused Advanced Operational START Finance/ERM Risk Exam and efficient pathway to the CERA. Module Exam FM Exam C The new ERM exam will provide a more APC* accessible means for candidates in CERA other tracks, as well as current FSAs and *Special eligibility rules apply. VEE (Economics ONLY) ASAs, to acquire a CERA credential with minimal additional exam time—a need *Must complete any two exams before applying. that has been expressed by candidates, members and employers. Enhanced CERA Pathway (Effective July 1, 2012)

Courseware will be developed specifically for the new ERM exam to FAP New Strengthens ERM content provide a cohesive and comprehensive New Important to ERM learning resource for candidates. The New ERM Exam replaces AFE SOA believes that this courseware will (4hr ERM -focused) prepare candidates well for success on Exam P Exam MFE the examination. ERM Operational START Exam Risk Module

An opportunity can now be realized to Exam FM Exam C update and rearrange material on the current exams and take advantage of a APC* CERA more clearly implied order for candidates *Special eligibility rules apply. to progress through the exams. This VEE (Economics and Corporate Finance only)

*Must complete any two exams before applying.

April/May 2011 | The Actuary | 33 The enhanced pathway more than meets their CERA through the SOA’s pathway the newly approved requirements are the requirements set out in the CERA continue to be eligible to apply for SOA shown in the chart below. Global Association syllabus. membership as an ASA. Candidates on the Finance/ERM track As part of the Global Enterprise Risk New ERM Option for All Tracks will not have the option to take a Management Designation Recognition To meet the goal of providing all fellowship non-core (two-hour) exam; Treaty, those who complete these new candidates with a pathway to the CERA they must take the ERM Exam. Therefore, requirements (as well as those completing credential, the requirements for the FSA candidates taking the Finance/ERM track the current requirements prior to July 1, designation will change to provide an or the CERA option for any other track 2012) receive their CERA from the CERA optional ERM pathway for every FSA will have two hours more of exam time Global Association. Those who receive candidate. The current requirements and than candidates who do not select the CERA option. Candidates for fellowship who do not choose to earn a CERA will Current FSA Requirements continue to have 12 hours of fellowship- level examinations, as is the case with the All ASA requirements current requirements.

Two Fellowship-level exams - The two exams are 6 hours each (except for U.S. Retirement Additional details about the Benefits, which incorporates the EA exams) revised examinations The ERM exam will be four hours in Three FSA modules as specified within the selected track length. The exam will be positioned so that it can be the first exam taken after Decision Making and Communication module (DMAC) FAP and will not rely on any material from the other fellowship exams. Three hours Fellowship Admissions Course (FAC) of the exam will consist of a common set of ERM questions. The fourth hour of the Enhanced FSA Requirements (Effective August 1, 2013) exam will be devoted to questions relating to a case study. There will be several All ASA requirements case studies available, one covering each practice area as well as one that is Three Fellowship-level exams: generic.3 The exam will have a unique • (Choice of) ERM Exam (4-hr) or a track-specific Fellowship Non-Core (FNC) Exam set of questions for each case study and candidates will be able choose which set (2-hr) to answer after receiving their exam. The 1 • FC (Fellowship Core) track-specific Exam (5-hr) case study questions will be practical and • FA (Fellowship Advanced) track-specific Exam (5-hr) business oriented.

Three FSA modules as specified within the selected track2 Of particular note, the new Finance/ERM track Fellowship Advanced exam will Decision Making and Communication module (DMAC) be structured as a Corporate Finance and Business Strategy examination, with ERM applications. This will be similar Fellowship Admissions Course (FAC) in content to some MBA courses and will provide candidates with business exposure necessary to complement

34 | The Actuary | April/May 2011 their technical skills. The more efficient ENDNOTES distribution of material on the Finance/ 1 The requirements for U.S. Retirement Benefits are ERM track makes this important addition different. The two EA exams will be taken instead to the syllabus possible. of FC.

2 Candidates who do not take the Operational Risk Timing module as part of their track requirements must When making changes such as these, time take it as a fourth module to earn a CERA. is needed to prepare a revised syllabus 3 and construct new exams. Candidates Candidates will not be required to match the should be provided ample time to make practice area case study to the track they ulti- decisions about how best to proceed mately select for fellowship. However, as is the toward their goals. The creation of the case now, all other elements must be from the ERM exam is less disruptive and affects same track. only one track. Therefore, the new CERA requirements will become effective Steve Eadie, FSA, FCIA, is a partner with Robertson July 1, 2012 with the first administration Eadie and Associates and a member of the Transfer Knowl- of the ERM exam in fall 2012. It will take edge Team. He can be contacted at [email protected]. longer to restructure the fellowship exams and so the new FSA requirements will become effective July 1, 2013 with the Global developments new exams given for the first time in fall 2013. Complete details regarding timing Leaders of other actuarial organizations looked at the increasing and transition are available on the SOA role of risk management and the CERA credential and began to website at www.soa.org/pathwaychanges. think about creating their own pathways. In a remarkable burst of cooperation, the major organizations combined to sign a treaty Conclusion that created a global entity responsible for granting the CERA The SOA’s Strategic Plan requires that credential through a variety of approved pathways. This resulted continuous improvements be made to in the creation of the CERA Global Association. Candidates who the education system, which ensures it complete the SOA’s CERA pathway now receive their credential provides attractive, efficient and high- from the CERA Global Association. As before, those who receive quality pathways for its stakeholders. The their CERA through the SOA’s pathway are also eligible to apply for SOA believes that a CERA credential membership as ASAs. earned through the SOA’s new pathway will provide all SOA candidates with an As of this writing, four other associations have been granted the efficient means of acquiring essential right to offer the CERA credential. A key distinguishing feature is ERM skills for tomorrow’s business they take an “associateship plus” approach. That is, candidates environment. This new approach to the must first complete the requirements for membership at the as- CERA pathway and to ERM knowledge sociate level and then complete whatever else is needed to comply development has been designed to with the Global CERA learning objectives. The SOA’s approach dif- provide a more comprehensive and fers in that only those associateship components required by the forward-looking education that the IAA for designation as a fully qualified actuary are included. A SOA’s CERA credential holders can carry proudly into the global marketplace. A

April/May 2011 | The Actuary | 35 The SOA At Work Strengthening Education

The Society of Actuaries’ number one concern is serving our Third, we’re going to offer a restructured CERA pathway. The SOA members and candidates. For that reason, we are constantly looking Board of Directors recently approved a proposal that revises the path to for ways to improve our services to you. Of course, we always have a obtain the CERA credential. As part of those changes, we’ll offer a new major focus on strengthening our education and examination systems. ERM-focused exam which will give candidates in every specialty track This year, we’re addressing our educational programs in three impor- an efficient way to earn the CERA, should they choose to do so. The tant ways. Education column on page 32 of this issue explains this change in more detail. We believe this change will provide a big boost to the growth of The first is our ongoing professional development (PD) redesign ini- CERA and to our efforts to help actuaries move into new fields. tiative. The SOA’s new Professional Development Committee, led by Dale Hall, FSA, CERA, MAAA, CFA, is hard at work updating our PD The SOA is committed to providing a variety of educational opportuni- offerings to: ties for members and candidates and to continuous improvement of • Base our offerings on the new competency framework; all of our programs. Of course, the success of these efforts depends on • Provide a continuous and integrated set of educational oppor- the hard work of more than 2,000 SOA members who volunteer their tunities, from our earliest exams throughout an actuarial career; time on behalf of the profession. If you haven’t already read President • Use a variety of innovative delivery systems; Donald Segal’s column on page 10, please do so. And then put the • Provide content that’s relevant and practical for you; and ideas presented there into action and take advantage of the many vol- • Make sure our PD offerings are cost effective for members and unteer opportunities the SOA has to offer. A employers.

— SOA Executive Director Greg Heidrich Second, this year we will begin offering all of our fellowship exams twice a year. This will benefit members and candidates in many ways. Candidates who are unsuccessful in an exam attempt will not have to wait a year to retake it (helping them be more efficient and effective in their studies); candidates will get more flexibility in their study prepara- tion; they’ll have a more logical order to the exams; and, we believe, shorter travel time to FSA. Getting prepared for this step has been no easy task for our member volunteers and staff, but, we think this will be a major benefit for candidates and well worth the effort. The new structure will be launched with the Fall 2011 exams.

36 | The Actuary | April/May 2011 The Actuarial Profession in the News Professional The SOA is focused on raising awareness of actuaries in the media. DEvelopment Recent efforts have been successful. Here are just a few examples: opportunities

Five Ways to Fill the Health Care The F-Word for Wall Street 2011 Life and Annuity Symposium Gap Before Medicare Forbes.com bylines actuary’s point of view May 16–17 Member Dale Yamamoto is quoted about on fraud and the financial crisis.www. Sheraton New Orleans Hotel health care coverage prior to obtaining forbes.com. Search term: Louise Francis New Orleans, La. Medicare. www.foxbusiness.com. Search Health Meeting term: Dale Yamamoto. Jumping Into the High-Risk Pools June 13–15 Cecil Bykerk is quoted about enrollment in The Westin Copley Place Boston Ideas for Making 401(k) Savings Last high-risk pools. www.politico.com. Search Boston, Mass. Longer term: Cecil Bykerk Noel Abkemeier is quoted in CNBC about SOA Dialogue: Interactive Leader guaranteed lifetime income. www.cnbc.com. They’re No Fool Session Search term: Noel Abkemeier. The Motley Fool site writes about the SOA’s June 23 obesity report and consumer survey. www. Webcast Retirement Planning and Its Challenges fool.com. Search term: Society of Actuaries. for Women ERM Techniques and Practices Forbes.com issues wake-up call for women View all of these articles by going to www. Aug. 1–3 and quotes Anna Rappaport. www.forbes. soa.org/newsroom and clicking on the New York, N.Y. com. Search term: Anna Rappaport. Profession In The News link. A SOA Dialogue: Interactive Leader Session Aug. 3 E-Courses Webcast

Corporate Finance: Introduction to needed to integrate and apply actuar- 46th Actuarial Research Corporate Finance E-Course ial concepts and principles to solving Conference This e-course covers the corporate fi- general business problems within the Aug. 11–13 nance branch of financial economics; context of your entire company and its University of Connecticut that is, how institutions make decisions business environment. Storrs, Conn. about raising and deploying capital. You will learn about the roles of the corpo- Enterprise Risk Management International Financial Reporting ration, debt holders, shareholders and This e-course is designed to provide for Insurers: IFRS and U.S. GAAP managers and the relationships between information to actuaries who do not Aug. 28–31 yet regularly practice in enterprise risk each. You will consider what things InterContinental Grand Stanford management (ERM), but want to know would be like in an ideal world and ex- Hong Kong amine what factors contribute to corpo- more about it to help expand existing

rate financial structures seen today. skills or meet professional develop- View all Professional Development ment requirements. opportunities by visiting www.soa.org Decision Making and Communication and clicking on Event Calendar. This e-course is designed to provide For more information, visit www. you with the communication (written soa.org, Professional Development, and oral) and decision-making skills e-Learning. A

April/May 2011 | The Actuary | 37 Recommended Readings

The following is a list of recommended readings from the contributing editors that they feel will pique your interest and help keep you informed.

“Just Like Someone without Mental Illness Only More Fictional Actuaries So,” by Mark Vonnegut, MD. Like his first memoir, “Eden Ex- Sightings of fictional actuaries go way beyond “About Schmidt.” press: A Memoir of Insanity,” this also deals with his experience They range from an actuary as a villain in two 1994 issues of with bipolar disorder. Now 30 years later, he talks about his ex- the Batman DC comic book (in which the actuary develops periences with our health care system as a practicing pediatri- the Batman risk tables and teaches the Penguin about risk man- cian who’s frustrated by the way our payment system not only agement) to “Are You With It?” a 1948 musical starring Donald rewards the wrong things but makes doing O’Connor as a singing, tap dancing actu- the right things much harder. He’s also a ary who runs away to join a carnival after a patient and shares his experience in ways misplaced decimal costs his company mil- that are touching and funny. www.npr. lions. www.wikipedia.org. Search term: org. Search term: Mark Vonnegut. Or use fictional actuaries. Or use QR code. QR code. New Feature! “Global Perspectives on Insurance Today: A Look at Na- To use the QR codes provided here, you must download a QR tional Interest Versus Globalization,” by Cecelia Kempler, reader app to your smartphone. This can be easily done by visit- Michel Flamee, Charles Yang and Paul Windels. This ambitious ing get.neoreader.com on your smartphone. book, which contains contributions from nearly 40 authors, covers insurance and reinsurance, as well as “modern risk transfer vehicles that allow participation by non-industry in- vestors.” A consistent theme is the tension between national interests and globaliza- tion and the industry’s need to achieve a balance in order to succeed. www.ama- zon.com. Search term: Cecelia Kempler. Or use QR code.

Attention Readers! If you have an idea for an article you think should appear in The Actuary, or a response to something you have read in these pages, tell us about it by sending an e-mail to [email protected].

38 | The Actuary | April/May 2011

Equity-Based Insurance Guarantees Conference

May 30-31, 2011 This seminar is designed to give professionals with Hong Kong, Japan limited-to-moderate experience an understanding of how to better quantify, monitor and manage the June 2, 2011 Tokyo, Japan risks underlying the VA and EIA products. Learn more at www.soa.org.

Printed in the USA