By John P. Tierney
Many Academy members might be surprised to hear that counseling actuaries (the “C” in ABCD) is a more common activity for ABCD members than is discipline (the “D” in ABCD). For example, in 2017 Actuarial Board for Counseling and Discipline members replied to 104 requests for guidance from actuaries, while disposing of just 15 discipline cases.
As an FCAS serving on the ABCD, I have had the opportunity to respond to requests for guidance from a number of casualty actuaries; these requests pertain to a variety of subjects. The most common areas of inquiry that I have handled have been:
- Qualification Standards (Precept 2 of the Code of Professional Conduct)
- Communications (Precept 4 of the Code and Actuarial Standard of Practice [ASOP] No. 41)
- Statutory Loss Reserve Opinions (ASOP No. 36)
Requests for guidance pertaining to statutory loss reserve opinions are naturally most common from December through February as many casualty actuaries immerse themselves in the work of preparing the statutory opinions. More often than not, I find that the actuary seeking advice is already familiar with the Code and the relevant ASOPs. Usually their desire for advice pertains to an interpretation of the Code and ASOPs. With many years of work experience, my fellow ABCD members and I are very well suited to provide this type of advice. I have found these interactions with other actuaries to be very gratifying as we work together to try to manage the challenges that we professionals face from time to time.
I have found one aspect of my discussions with actuaries pertaining to statutory loss opinions a bit surprising. Frequently, after discussing the contents of the Code of Professional Conduct and relevant ASOPs, I will suggest that we review together the Academy’s practice note on statutory loss opinions. (More formally, it is titled “Statement of Actuarial Opinion on Property and Casualty Loss Reserves.”) Often, my suggestion is met with silence on the other end of the phone, as the person I am talking to is not entirely familiar with the practice note. Once we have reviewed together sections of the practice note, the actuary finds that the practice note is both a comprehensive and invaluable resource for helping in the preparation of a proper statutory loss reserve opinion.
So, what is the practice note to which I am referring? Prepared by the Academy’s Committee on Property and Liability Financial Reporting (COPLFR), it is a 100+ page document that explores in detail the various component pieces of the statutory opinion. It is extremely well documented, with ample cross-references to the NAIC instructions and the relevant actuarial standards of practice. Illustrative language to use in a statutory opinion is inserted throughout the document to help the actuary deal with specific issues. Sidebars with frequently asked questions are also a common feature. And it is always current, as COPLFR updates the practice note annually.
Not only does the practice note deal with every component piece of a statutory opinion, it presents the filing instructions plus detailed appendices of supporting materials, including the NAIC instructions.
COPLFR is comprised of more than 20 experienced casualty actuaries, and they have prepared a document that in my opinion is extraordinary for its clarity and thoroughness. Every casualty actuary who is responsible for preparing a statutory loss opinion would be wise to have this document readily available on his/her computer.
I will insert here that I am not quite sure why a number of the actuaries that I’ve talked to are not as familiar with the practice note as I would have expected. It is, after all, currently on the syllabus for Part 7 of the CAS exams. Perhaps they, like me when I was younger, subconsciously avoid going back to some syllabus readings because those readings remind them of the sometimes-painful process that we went through to prepare for and pass the exams. Perhaps the regular updates to the practice note are not sufficiently communicated and publicized. Or perhaps the timing of the issuance of the practice note (last year’s was issued on December 19) is such that it slips under the radar of those who are already absorbed in the process of evaluating year-end reserves—not to mention the vagaries of the holiday season. However, I do know that the practice note can be easily accessed through the Academy’s website. Go to the “Features” on the lower right of the Academy’s home page, and click on the fourth bar titled, conveniently enough, “Practice Notes.”
There, you’ll also find numerous other helpful practice notes. For example, in the casualty area, there is a practice note released in April 2018 on the interaction between actuarial analyses and accounting for retained casualty insurance risks. There are many other practice notes in the life, pension, health, and cross-practice areas, all of which have been prepared by a committee of knowledgeable, seasoned actuaries.
It should be noted that practice notes are very clearly differentiated from the ASOPs. Practice notes are educational and nonbinding. Actuaries are not required to follow practice notes, and they are carefully written to avoid that implication. They are, however, an excellent source of education, which is what they are intended to be.
When you are finished reading this article, I recommend that you immediately go to the Academy website and find the practice notes that are most applicable to your current area of work. Read them, and download them to your computer where they will be readily accessible. They will help make your work more thorough and more professional—always a worthy objective to strive for.
JOHN TIERNEY, MAAA, FCAS, was a member of the Actuarial Board of Counseling and Discipline until December 2018.