By Deborah Rosenberg
A fable is best described as a narrative that illustrates or leads to a particular moral lesson. While these stories may be entertaining, they also play an important role in passing along core values. Many famous fables are attributed to Aesop, a fable writer and slave in Greece during the fifth century BCE. Apollonius of Tyana, a first-century CE philosopher made the following statement about Aesop: “Like those who dine well off the plainest dishes, he made use of humble incidents to teach great truths, and after serving up a story, he adds to it the advice to do up a thing or not to do it.”
What we actuaries all have in common is that we are equal members of a distinguished profession. As a profession, we also have certain core values or “great truths,” not unlike the moral of the story in Aesop’s fables. Many years ago, Roscoe Pound, a dean of Harvard law school, defined a profession as a group of individuals pursuing a learned art as a common core in the spirit of public service. The actuarial profession is a self-regulating profession. We value the independence of the actuarial profession. Self-governance carries with it important and special responsibilities. We must adhere to the ethical precepts and the rules of professional conduct, the “great truths” of our profession. Failure to do so may compromise the independence of the profession and the financial security of the public that it serves.
And those ethical precepts are well-lit guideposts of appropriate behavior. Accept responsibility. Do not try to get others to do your work for you, do not make excuses, acknowledge your mistakes, try to fix them, and try to figure out how to avoid making the same mistake again. We learn from our mistakes. Actuaries are problem-solvers. Figure out what type of problems you would like to solve and become adept at solving them. Know your own strengths and weaknesses.
Core values are an essential building block for any successful endeavor, be it political, entrepreneurial, nonprofit, or professional. The Actuarial Standards Board (ASB), which sets standards for appropriate actuarial practice in the United States through the development of actuarial standards of practice (ASOPs), embodies the core values of the actuarial profession. ASOPS describe the procedures an actuary should follow when performing actuarial services and identify what the actuary should disclose when communicating the results of those services. While the ASB does not enjoy the popularity of Aesop outside of actuarial circles, and the ASOPs do not contain the amusing characters of Aesop’s fables, the ASOPs function to pass along certain core values to the actuary.
The ASB has issued ASOP No. 1, Introductory Actuarial Standard of Practice, which sets out certain core values that underlie the remaining ASOPs:
“[T]he ASOPs provide the actuary with an analytical framework for exercising professional judgment and identify factors that the actuary typically should consider when rendering a particular type of actuarial service. The ASOPs allow for the actuary to use professional judgment when selecting methods and assumptions, conducting an analysis, and reaching a conclusion, and recognize that actuaries can reasonably reach different conclusions when faced with the same set of facts.”
The ASOPs are intended to help actuaries answer, to the best of their abilities, the issues that come into play every day. Do these data seem reasonable, can they be reconciled to any other sources, are there a sufficient amount of data for the purpose at hand, should any industry data be used to supplement the available data? If so, what is the source of this data and how should it be incorporated in the analysis? Are the methods that are usually used appropriate for this analysis; if not, what methods would be more fitting? What steps could be taken to deal with results that are unexpected or not in line with results from prior analyses? What diagnostics would be appropriate to test the assumptions? How will a change in retention impact results? Are there risks of adverse material deviation? If so, what are they and how does one determine an appropriate materiality level? What are my responsibilities to my clients /employer? What is the best way to communicate the results of the analysis to the users of the analysis who may not be familiar with actuarial terminology and techniques? These are just some of the myriad questions that face the actuary each day. Compounding these questions is the fact that in many situations there is more than one reasonable approach and no single correct answer. The ASOPs provide the actuary with the guidance and support for making appropriate decisions, communicating them to the intended users and adding value with their recommendations.
The ASOPs provide guidance to actuaries on the issues that actuaries are faced with on a daily basis. An example from the master himself, Aesop, may be instructive in illustrating certain core values that are also fundamental to appropriate actuarial practice and the maintenance of self-regulation.
We all know the fable about the Tortoise and the Hare. In it, a cocky Hare and a slow-moving Tortoise challenge each other to a race. The Hare, believing he could never lose to a pokey creature such as the Tortoise, stops to rest, believing that he has all the time in the world to spare. The Hare ends up falling asleep and the Tortoise moves past the Hare to win the race. The most common takeaway from this tale is that “Slow and steady wins the race.” In truth, however, rarely does going slowly win any races. Going slowly is a good way to be careful, but that is not what races are about.
In fact, the real lesson is not about the Tortoise at all—it’s about the Hare. The Hare believes that he’s faster than the Tortoise, and he’s right. The Hare will beat the Tortoise every time. But the Hare makes a huge mistake: believing in his ability but then not actually proving it. In life you may have great skill, skill which everyone acknowledges, but you must still use that skill appropriately, in accordance with core values, in order to succeed. Overconfidence that leads to a lackadaisical attitude will often be punished by embarrassing failure.
The ASOPs provide the U.S. actuarial profession with the core values needed to maintain its structure of self-governance. But more than that, the ASOPs allow individual actuaries to peer around corners, searching for blind spots in their own practice. The benefit this brings—both for the individual actuary and for the profession as a whole—is no fable.
DEBORAH ROSENBERG, MAAA, FCAS, is a member of the Actuarial Board for Counseling and Discipline.