By Cande Olsen
The long weekend was coming up, and Matt was looking forward to getting together with his old college buddies, Susan and Jim. It had been 10 years since they had seen each other, as math majors at State University. After graduation, they had all moved to different parts of the country but coincidentally ended up following an actuarial career and were all now FSAs. They were meeting for lunch in the hometown where they grew up. They were all anxious to exchange stories about their work experiences.
They all ended up doing different things. Matt works for a small insurance company, doing annuity pricing work. Susan works for a large consulting firm where she has had a variety of assignments related to life insurance valuation and appointed actuary work, and Jim is a state regulator (in a state that neither Matt or Susan practiced in)—his main job is approving long-term care (LTC) policy form and rate filings with occasional involvement in approving other products.
They were all excited to see one another. The lunch started with some small talk about how they got to where they were and their careers, the challenges of taking exams, and their personal lives. The conversation then turned to the topic of professionalism. They all felt they had different challenges and were anxious to hear about the experiences of the others.
“Let’s talk about the Code of Professional Conduct,” said Matt.
They all agreed that compliance with Precept 1 should be a no-brainer. Acting honestly with integrity and competence, and with skill and care … that’s who we are! But then Matt went on to say that sometimes he felt pressured to get certain results, which might be inconsistent with reasonable assumptions. “My management lets me know that they want me to develop a competitive product that will increase market share but still show a profit. It is a challenge to explain to management that I can’t always give them what they want.” Susan agreed that this could be a challenge, but also mentioned that there was a discussion paper written by the Academy’s Committee on Professional Responsibility titled Explaining Professionalism to Principals that was very helpful to her. One of the statements from that paper [restated slightly for brevity] that really resonated with her was:
“For a principal who is a non-actuary, the importance of actuaries’ adherence to the actuarial standards of practice (ASOPs) and the Code should be conveyed to the principal in a context that relates to the principal’s own professional goals, such as maintaining the financial well-being of the company.”
Matt was thankful for that advice. Jim then added a different twist to the challenge actuaries face when ensuring actuarial services provided are performed with skill and care. Jim says he sees the work of a lot of actuaries. Most of them are role models for skill and care, while others (a small minority) are less careful and competent, resulting in some filings not clearly in compliance with state regulations. Jim said he spends a significant amount of time with some of these actuaries helping them to get the filing right before it could be approved. He may not be responsible for that work, but he is responsible for ensuring that filings are approved only if they comply with the state regulations. Listening to Jim’s comments suggested to Matt that he should implement a better peer review system for filings and any other work coming out of his actuarial area. He also thought he should remind his staff of Precept 4, which requires that actuarial communications be clear and appropriate to the circumstances and its intended audience, and satisfies applicable standards of practice, which would include ASOP No. 41, Actuarial Communications.
They then considered Precept 2, which requires the actuary to only perform work when they are qualified to do so. Susan thought that was easy. If an opportunity came for her to do some work for a client that she was not qualified to do, she would just hand it off to another consultant in the firm. And if no one in the firm could do it, the firm would just turn the request down. Matt said his situation made it a little bit harder. When his management asks him to take on an assignment that he doesn’t feel qualified to do, in such a small company, there might not be another actuary who was qualified to hand it off to, and there might not be an option to turn down an assignment to price a new product that was important to the company. Jim piped up that this is a situation that state regulators face all the time, because there are always new products on the horizon. He noted that section 4 of the U.S. Qualification Standards (USQS) gives guidance on this situation, focusing on obtaining continuing education that is relevant to the actuarial services to be provided. USQS FAQ 14 gives some additional perspectives. Jim went on to say, “But in the end, you still need to ask yourself the question as to whether or not you are really qualified on the relevant aspects of the actuarial services needed, as well as any laws that might be relevant, before attempting to provide such actuarial services. This is often called the Look-in-the-Mirror Test. If, even after obtaining relevant continuing education you are still not sure you are qualified, you may need to make a case to your superior that you need to hire a consultant to assist you. That is what we have done in the state insurance department.” Matt appreciated Jim’s advice.
Next on the list was Precept 3, which requires the actuary ensure that the actuarial services performed by or under the direction of the actuary satisfy applicable standards of practice. Matt noted that there are always new ASOPs coming out, and he was concerned that there wasn’t enough time to stay on top of all the ASOPs. Susan reminded him that every time a new ASOP comes out, the Academy’s Council on Professionalism and Education publishes an update to the Applicability Guidelines, which indicate which ASOP is likely to apply to the most common tasks taken on by actuaries. The Applicability Guidelines are not binding, but she said she found them to be an excellent starting point for efficiently keeping up-to-date on the ASOPs. Susan also said that she makes a practice of regularly reviewing the ASOPs that apply to all the work she does—ASOP No. 1 (Introductory Actuarial Standard of Practice), ASOP No. 41 (Actuarial Communications), and ASOP No. 56 (Modeling). She assured him this was an easy review if done regularly. She added that one of her favorite reminders is in ASOP No. 41:
“In the actuarial report, the actuary should state the actuarial findings, and identify the methods, procedures, assumptions, and data used by the actuary with sufficient clarity that another actuary qualified in the same practice area could make an objective appraisal of the reasonableness of the actuary’s work as presented in the actuarial report.”
Jim then reminded the others that Precept 3 compliance isn’t just related to the work we do, but also the work of those working under our direction. Matt was quick to ask, “What about non-actuaries that report to us?” Jim quickly replied, “Yes, even non-actuaries! But in this case the bottom-line compliance responsibility is only with you, not them!” Matt was thankful for the reminder, and made a mental note that he would want to educate his staff about his professional responsibilities.
Matt and Jim were curious to find out whether Susan ever had any professionalism issues. It sounded like her company had many actuaries and was very supportive of her need to comply with the Code and the ASOPs. She agreed that it was, but a big company is sometimes at greater risk for actuarial communications getting misused or misinterpreted, given they are touched by so many hands. This makes compliance with Precept 8 important. Precept 8 requires an actuary to take reasonable steps to ensure that their actuarial services are not used to mislead other parties and should include, as appropriate, limitations on the distribution and utilization of the actuarial communication. Susan said she needs to be super-vigilant about ensuring that her actuarial communications are limited as appropriate so they aren’t inadvertently used by others in her firm or even by her clients for other purposes that could be inappropriate. Matt and Jim thanked her for the reminder that they should always keep Precept 8 in mind.
The time went by quickly, but they all agreed it was a great discussion, and they were hopeful that they could do it again before another 10 years goes by! They all had different challenges, but by sharing their challenges, they each learned something that would be helpful in their own professionalism journey.
CANDE OLSEN, MAAA, FSA, is a member of the Actuarial Board for Counseling and Discipline.
