Ethics and Professionalism: A Consulting Actuarys Perspective

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Ethics and Professionalism A Consulting
Actuarys Perspective

• Mary Frances Miller
• CASE Meeting 4/1/03

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Topics

• Qualification
• Judgment
• Peer Review
• Documentation

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Qualification

• What are my responsibilities?PRECEPT 2. 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.

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Qualification

• How do I decide if Im qualified?
• Do I have enough education?
• Exams
• Other sources
• Do I have enough experience?
• Same assignment
• Similar assignment
• Is my continuing ed sufficient?
• Am I up to date on current practice?
• Is my recent continuing ed applicable to this?

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My qualifications

• Education
• 10 CAS exams (1988 syllabus)
• CPCU / ARe
• Experience
• Personal Lines ratemaking 1984-91
• Reinsurance ratemaking reserving 1992-93
• Risk retention consulting 1993-2003
• Continuing Ed
• General ratemaking and reserving up to date
• SoA Group Health Exam 8 read partial syllabus
• AAA Specific Qual Std for NAIC opinions

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What am I qualified to do?

• Slam dunk the stuff I do every day
• Reserves and forecasts for risk retainers
• WC / GL / AL / HPL / EO / Prop / EPL / Pollution
• Reserve opinions for single parent and group
  captives, risk retention groups, self-insured
  workers compensation reserves, risk pools
• Ratemaking for risk pools rrgs
• Forecast allocations

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What am I qualified to do?

• A little stretch things I do less often
• Doctors MPL
• Self-insured health reserves
• Insurance company reserves
• Large commercial
• Standard coverages
• Cash flow studies (not really DFA)

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What am I qualified to do?

• A bigger stretch things I can do with some
  additional preparation
• Captive feasibility studies
• Do I know enough about venues taxes?
• Are my accounting skills sufficient?
• Can I get adequate peer review?
• Self-insured individual long term disability
• Am I making the right assumptions?
• Am I applying appropriate techniques?
• Simple DFA

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What am I NOT qualified for?

• Health insurance ratemaking
• Assessment spiral
• Personal lines ratemaking
• Although I would be comfortable with a peer
  review role
• Commercial lines ratemaking most lines
• Other benefits work
• Complicated DFA

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Actuarial Judgment

• PRECEPT 1. 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.

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Actuarial Judgment

• 3.5.2 Changing ConditionsThe actuary should
  consider the likely effect of changing conditions
  on the subject loss and loss adjustment expense
  reserves. The actuary should consider whether
  there have been significant changes in conditions
  particularly with regard to claims, losses, or
  exposures that are new or unusual and that are
  likely to be insufficiently reflected in the
  experience data or in the assumptions used to
  estimate loss and loss adjustment expense
  reserves. . .

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Actuarial Judgment

• . . . The actuary should obtain information from
  the entity regarding the significant changes in
  the practices or philosophy used by the entitys
  claims personnel and ascertain whether such
  changes are likely to have a material effect on
  the results of the actuarys reserve analysis or
  on the risks and uncertainties associated with
  the reserves.

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Actuarial Judgment

• The latest diagonal in the incurred triangle is
  up No apparent changes in the payment pattern
• Reserve strengthening or deterioration?
• What are the consequences of my assumption if Im
  wrong?
• How can I frame my questions so that the client
  doesnt know the right answer?

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Actuarial Judgment

• Incurred diagonal is down payment pattern is
  unchanged
• Reserve weakening or improved experience?
• What are the consequences if Im wrong?
• How many additional tests should I do?
• How should I document my judgment?

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Peer Review

• Pre-Project Planning
• Do I understand the problem?
• Have I made the right assumptions?
• Am I using the best methodology?
• What other things should I consider?
• Talk through the project with a knowledgeable
  colleague
• At SAS, we include this step for essentially all
  projects that are not routine

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Peer Review

• Calculation Review
• We all make mistakes
• Good spreadsheet design and consistency in
  presentation of exhibits eliminate many mistakes
• But may cause me to be lazy in my judgments!
• Can be conducted by an analyst
• Does every calculation need to be checked?

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Peer Review

• Methodology Review
• Do my assumptions make sense?
• Did I use the right techniques?
• Do my conclusions follow from the data and
  calculations?
• Will my conclusions make sense to the client?
• At SAS, this is a required step, conducted
  pre-release by a credentialed actuary

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Control Cycle The next time around

• How accurate was my last projection?
• Was I consistently off?
• Prior assumptions were incorrect
• Or does the variation appear random?
• Stuff happens
• Do my changes in conclusions make sense in light
  of the current data?
• Can I explain what happened to the client?

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Documentation

• What did we agree to do?
• Who, what, when, how much?
• Contract or engagement letter is best
• Could be informal with a regular client
• Minimum Email confirmation of a telephone call

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Documentation

• What data did we ask for?
• What did we get?
• Was it what we needed?
• Was it consistent with prior data?
• Or was it internally consistent?
• What did I do to fix it?
• Who did I talk to emails to confirm?
• What constitutes documentation that the data
  didnt need adjustment?

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Documentation

• Was I qualified?
• Should I document in the project?
• What standards applied to the project?
• Did I follow them?
• How do I document this? Do I need to?
• What techniques did I use?
• Should I document what I decided NOT to use?

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Documentation

• Did I release any draft conclusions to the
  client?
• What do I mean by a draft?
• Did I document that to the client?
• What changed in the final report?
• Did I meet with the client?
• What did I learn that changed my assumptions?

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Documentation

• Can another actuary follow my calculations?
• Was there peer review?
• What did the peer reviewer conclude?
• Did I make appropriate changes?
• Did I follow up with the client?
• Were they satisfied?
• Was there additional follow up?
• Auditors, regulators, etc.

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Professionalism

• Dont leave home without it.