Professionalism for Actuaries

1. Professionalism for Actuaries CANW- 2018 Vancouver meeting Moderators: Caitlin Hendricks and ?

2. Agenda • Table Ice Breaker • Group competition • Review of Code of Conduct, ASOPs and Continuing Education • Case Study tables discussion

3. Ice Breaker • Let’s mix up tables! • Everyone introduce yourself. If comfortable please share: • Name • Employer/ School • Actuarial experience (exams/ jobs) • Fun fact

4. Let’s see how you work together… Quiz time • Collaboratively decide on the answer amongst your table • Write down your letter choice • There are 10 questions • Winning team gets bragging rights and a sweet snack!

5. Question #1 • Which of the following are binding for Actuaries? • A) Code of Professional Conduct • B) Actuarial Standards of Practice (ASOPs) • C) Practice Notes • D) A, B, and C • E) A and B

6. Question #2 • How many pages long is the Code of Professional Conduct? • A) 4 pages • B) 12 pages • C) 23 pages • D) 50 pages • E) 76 pages

7. Question #3 • How many precepts are included in the Code of Professional Conduct? • A) 12 • B) 14 • C) 15 • D) 18 • E) 22

8. Question #4 • Which Actuarial Organizations Adopted the Code of Professional Conduct? • A) AAA • B) SOA • C) CCA • D) ASPPA • E) CAS • F) All of the above • G) A, B and E

9. Question #5 • What does ABCD stand for? • A) Actuarial Board for Counseling and Discipline • B) Actuarial Board for Conduct and Discipline • C) Actuarial Board for Conduct and Direction • D) Actuarial Board for Counseling and Direction

10. Question #6 • The Code of Professional Conduct requires members to report all individuals who have violated one of their professional obligations to the ABCD for disciplinary action. • A) True • B) False

11. Question #7 • The Actuarial Board for Counseling and Discipline (ABCD) has the power to discipline members of the Casualty Actuarial Society. • A) True • B) False

12. Question #8 • Members of the AAA perceive the top ethical concern for actuaries as “responding to pressure from principals and/or management to select inappropriate assumptions”? • A) True • B) False

13. Question #9 • What is precept #1 in the Code of Professional Conduct? • A) Qualification Standards • B) Titles and Designations • C) Courtesy and Cooperation • D) Standards of Practice • E) Professional Integrity

14. Question #10 • How many hours of CE are required in total each year and how many organized? • A) 30 hours total, >= 6 organized • B) 40 hours total, >= 8 organized • C) 20 hours total, >= 4 organized • C) 40 hours total, >= 6 organized

15. Code of Professional Conduct • Categorized into 11 divisions with 14 precepts and 23 annotations: • Precepts: “Professional and ethical standards with which an actuary must comply” • Annotations: “Explanatory, educational and advisory material” • “An Actuary must be familiar with, and keep current with, revisions to the code of professional conduct, its precepts and annotations”

16. Precept #1: professional integrity • An Actuary shall act honestly, with integrity and competence, and in a manner to fulfill the profession's responsibility to the public and to uphold the reputation of the actuarial profession.

17. Precept #2: Qualification Standards • An Actuary shall perform Actuarial Services only when the Actuary is qualified to do so on the basis of basic and continuing education and experience and only when the Actuary satisfies applicable qualification standards.

18. What are Qualification Standards? • Mandatory for all credentialed actuaries who issue Statements of Actuarial Opinion • Include: • Basic Education (i.e., actuarial credentials) • Responsible Actuarial Experience (generally three years) • Continuing Education • 30 hours annually (50 minutes = 1 hour) • ≥ 6 hours of organized activities • ≥ 3 hours of professionalism (this session counts!) • ≤ 3 hours of general business courses

19. Precept #3: Standards of practice • An Actuary shall ensure that Actuarial Services performed by or under the direction of the Actuary satisfy applicable standards of practice.

20. What are the Standards of practice? • ASOPs provide guidance on the techniques, applications, procedures, and methods that reflect appropriate actuarial practices in the United States. • Binding on members of the U.S.-based actuarial organizations when rendering actuarial services in the U.S. • There are currently 53 ASOPs, but they are continually updated – there will be a 54th in December regarding pricing of life insurance and annuities • There are 12 casualty specific ASOPs and 9 general ASOPs • Also must consider: • Legal and regulatory requirements • Professional requirements promulgated by employers or actuarial organizations • Evolving actuarial practice • The actuary’s own professional judgment

21. Common Actuarial Standards of practice • ASOP 23: Data Quality • Selection of data • Reliance on data supplied by others • Reliance on other information relevant to the use of data • Review of data • Limitation of the actuary’s responsibility • Use of data • Documentation

22. Common Actuarial Standards of practice • ASOP 41: Actuarial Communications • Requirements for actuarial communications • Actuarial report • Specific circumstances • Disclosures within an actuarial report • Explanation of material differences • Oral communications • Responsibility to other users • Retention of other materials

23. New Actuarial Standard of practice • ASOP 53: Estimating Future Costs for Prospective Property/Casualty Risk Transfer and Risk Retention – Eff. August 1st, 2018 • Based off of the Statement of Principles Regarding Property and Casualty Ratemaking (includes the four fundamental principles of ratemaking) • Covers: • Organization of Data • Methods, Models, and Assumptions • Selecting an Exposure base • Use of Historical exposure, premium, loss, and expense data • Adjustments to historical data including trend • What to consider for New Coverages or exposures

24. Precept #4-5: communications • An Actuary who issues an Actuarial Communication shall take appropriate steps to ensure that the Actuarial Communication is clear and appropriate to the circumstances and its intended audience and satisfies applicable standards of practice. • An Actuary who issues an Actuarial Communication shall, as appropriate, identify the Principal(s) for whom the Actuarial Communication is issued and describe the capacity in which the Actuary serves.

25. Precept #6: Disclosure • An Actuary shall make appropriate and timely disclosure to a present or prospective Principal of the sources of all direct and indirect material compensation that the Actuary or the Actuary's firm has received, or may receive, from another party in relation to an assignment for which the Actuary has provided, or will provide, Actuarial Services for that Principal. The disclosure of sources of material compensation that the Actuary's firm has received, or may receive, is limited to those sources known to, or reasonably ascertainable by, the Actuary.

26. Precept #7: Conflict of interest • An Actuary shall not knowingly perform Actuarial Services involving an actual or potential conflict of interest unless: • the Actuary’s ability to act fairly is unimpaired; • there has been disclosure of the conflict to all present and known prospective Principals whose interests would be affected by the conflict; and • all such Principals have expressly agreed to the performance of the Actuarial Services by the Actuary

27. Precept #8: Control of work product • An Actuary who performs Actuarial Services shall take reasonable steps to ensure that such services are not used to mislead other parties.

28. Precept #9: Confidentiality • An Actuary shall not disclose to another party any Confidential Information unless authorized to do so by the Principal or required to do so by Law.

29. Precept #10: Courtesy and cooperation • An Actuary shall perform Actuarial Services with courtesy and professional respect and shall cooperate with others in the Principal's interest

30. Precept #11: Advertising • An Actuary shall not engage in any advertising or business solicitation activities with respect to Actuarial Services that the Actuary knows or should know are false or misleading

31. Precept #12: Titles and designations • An Actuary shall make use of membership titles and designations of a Recognized Actuarial Organization only in a manner that conforms to the practices authorized by that organization

32. Precept #13: Violations of the Code of Professional Conduct • An Actuary with knowledge of an apparent, unresolved, material violation of the Code by another Actuary should consider discussing the situation with the other Actuary and attempt to resolve the apparent violation. If such discussion is not attempted or is not successful, the Actuary shall disclose such violation to the appropriate counseling and discipline body of the profession, except where the disclosure would be contrary to law or would divulge confidential Information

33. Precept #14: Violations of the Code of Professional Conduct • An Actuary shall respond promptly, truthfully, and fully to any request for information by, and cooperate fully with, an appropriate counseling and disciplinary body of the profession in connection with any disciplinary, counseling or other proceeding of such body relating to the Code. The Actuary's responsibility to respond shall be subject to applicable restrictions on Confidential Information and those imposed by Law

34. The abcd • The Actuarial Board for Counseling and Discipline (ABCD) was established by the U.S. actuarial organizations to strengthen members' adherence to the recognized standards of ethical and professional conduct. • The Board has two primary functions: • It responds to actuaries' request for guidance on professional issues. • It considers complaints about possible violations of the actuarial Code(s) of Professional Conduct.

35. How does the ABCD Spend its time?

36. Case Studies • Structure of session • Read the case together. • Discuss opposing viewpoints at your table • Strict: Follow the rules regardless of the situation. • Practical: Be practical in the application of rules. • See if there is a common ground by sharing thoughts with the larger group • Disclaimers: • Exercise is for education purposes only. • Any opinion expressed by anyone does not represent the opinion of their employer or the CAS. • No authoritative guidance should be expected of the moderator or panelists.

37. Case Study #1 • As the chief actuary for your company, you annually perform a reserve analysis using appropriate methods. This year, senior management hires an outside consultant to perform the reserve analysis as well. • The consultant’s reserve estimates show the company to be materially redundant. You believe your results are reasonable, but your management insists that the consulting actuary has more reserving expertise than you, and demands that you reduce your estimates. • What, if anything, should you do?

38. Case study #2 • Assume that you filed a rate change of +10% and it is sitting in the Department of Insurance for quite a while (Prior Approval state/province). A new analyst decides to run a more current indication which utilizes two additional quarters of data that is not included in the 10% change waiting for approval. This new indication shows a 0.0% need. The new analyst shares this information with you and you have seen the answer. What do you do?

39. Case Study #3 • Suppose your marketing department is really pushing a new business discount in order to get a boost in growth. You have no actuarial support for the discount because you do not collect data on it. The competition does not have this discount either. As an actuary, would you file a discount that has no known support? What would you do?

40. Case Study #4 • You are the 1st FCAS employed by a small monoline writer of Auto Extended Warranty coverage, where loss experience is almost non-existent for the 1st 36 months. The consulting actuary who performed the reserve review in the past set ultimate loss ratios high enough to yield an underwriting loss, although the underwriters are convinced the book is profitable. (CY results for this growing line support the UWs’ view.) The portfolio underwent major re-underwriting 3 years ago, invalidating nearly all useable history. What is your course of action?

41. Case Study #5 • Your systems vice president recently informed you that there was an error in the loss triangles provided for your loss analysis as of March 31, 2008. Although the company has already booked your reserve estimate, you re-estimate the March 31 reserves with the corrected data and it produced reserve estimates that are 15% higher than your previous best estimate. Because of recently passed tort reform, you expect your loss experience will improve throughout 2008 and that the difference will become immaterial by the end of 2008. Your CEO shares your expectations about the improved experience and wants you to amortize the difference throughout 2008. What do you do?

42. Case Study: Actuarial Magic • Jane is an actuarial manager working at a mid-size insurance company. She is responsible for new business forecasting. • Jane recently finished developing business distribution assumptions for a new product, introduced by the company last year. The product did not sell as well as expected and Jane had to reduce previously optimistic sales assumptions for future years. She produced new business projections for this product and summarized them in a report delivered to Anthony, company’s CFO and Jane’s boss, who is not an actuary.

43. Case Study: Actuarial Magic • Anthony calls Jane into his office, and opens his discussion with: “Listen Jane, I think your new business projections are too conservative. If our sales projections are this low, we may lose some of our distribution agents to our competitors. Why don’t you increase the new business sales by 10% for the next 5 years across the board to have a more optimistic forecast? Just work your actuarial magic.” • Jane is perplexed with Anthony’s request. In her career, she has never been asked to change her assumptions without sound justification.

44. Case Study: Actuarial Magic • 1) How should Jane respond to Anthony? • 2) Where do Jane’s responsibilities lie? • 3) What are the outcomes of Jane’s potential actions? • 4) What components of Professionalism does this situation highlight?

45. Case study: data management • Sylvie oversees commercial property reserving for a major insurer. With a varied product line, Sylvie receives data from many other teams and other external data sources, and all have a long history of providing solid data. Sylvie and her staff have been able to use the data, with relatively few changes, in their valuations.

46. Case study: data management • The CFO is concerned about the cost structure for the commercial property division. The results of a time audit have shown significant time spent on data review, yet the team has found relatively few errors. The Chief Actuary would like to free up Sylvie’s group for more valuable pricing and product development work and has asked that they reduce the time spent in data review and clean-up.

47. Case study: data management • Sylvie has struggled with how to achieve this objective. She has considered high level checks -- e.g. summary reports showing averages and distributions for ages, claims, etc. While this would save time, she’s concerned that changes in data sources, staff and systems could inadvertently introduce errors into her valuation. The Chief Actuary believes the high level review would be sufficient and would catch any significant errors introduced by these changes.

48. Case study: data management • 1) What is the actuary’s responsibility with regard to the review of data? • 2) Can Sylvie rely on the other teams and external providers to supply accurate data? • 3) How should Sylvie respond to the Chief Actuary’s (and CFO’s) interest in curtailing her data review?