Transcript Working as a Self-Employed Actuary

The Self-Employed
Actuary
Julie Curry, FSA, MAAA
Curry Actuarial Consulting LLC
(770) 630-4354
Outline of Presentation
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Risks and rewards of self-employment
Career path toward self-employment
Profile of a successful small business owner
Steps to starting a business
Running a small business: administrative
issues
Case Studies
Question & Answer
2
My Background
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Life Insurance Company - 8 years
– Financial reporting expertise
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Ernst & Young Consultant – 6 years
– Consulting (M&A, financial reporting, etc)
– Audit support (Statutory, GAAP)
– State Ins Dept examination support
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Independent Consultant – 13 years
– Life insurance company financial reporting
– Financial reporting systems implementation
– Audit support (audit firms, dept of ins)
3
Types of Actuarial Jobs
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Insurance/Reinsurance Co (Life, Health, PC)
Pension/Benefits Actuary
Educator
Consulting
– Actuarial consulting firm
– Pension/benefits consulting firm
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Regulatory (Dept Ins, Fed Govt, other)
Other (banks, etc)
4
How to Decide Path
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Interest and aptitude based on college
course work
Perceived advancement opportunities
Strength in interpersonal skills
Ability of various jobs to offer actuarial
students study time
Geographic limitations
5
First Job:
My Decision Process
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Summer internship at life insurance company
Interviews through college placement office were
all insurance companies
Looked for company with actuarial study program
and rotation program
Goal of staying close to home (Columbus OH)
Ended up at Capital Holding (Life Ins Co) in
Louisville KY
Company assigned me to financial reporting
25+ years later, I’m still in financial reporting!
6
Factors in Job Changes
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External Factors
– Position eliminated
– Spouse transferred
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Internal Factors
– Perception of better opportunity or lower stress
elsewhere
– Desire to increase compensation
– Interest in changing career tracks
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Ins co to consulting or vice versa
Desire to move to teaching position or regulatory job
7
Becoming a
Self-Employed Actuary
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It’s not the first step in a career path!
If this is your ultimate goal, each step in
career path should keep this goal in mind
Typical career path might be:
– Insurance co  insurance consulting firm 
establish own consulting firm
– Pension consulting firm  establish own pension
consulting firm
– Insurance Dept  establish regulatory services
consulting firm
8
Do you want a job with:
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No paid vacation?
No pension plan?
No health insurance benefits?
No guaranteed income?
Five bosses, each of whom wants something
NOW?
The potential to earn much more than
you’re currently earning?
Then self-employment might be the answer!
9
Advantages of SelfEmployment
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Be your own boss
Work at home/no commute time
– Casual dress
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Flexible hours
Good hourly rate
Work from any location
– Home is where the laptop is
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Disadvantages of SelfEmployment
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You may not like your boss
“Work at home/no commute time”
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Distractions at home
No social interaction with peers
No ability to learn from co-workers
Travel time to client location
“Flexible hours”
– Often chosen by client – you’re “on call”
– May be 18 hours per day during a big project (no
employees!)
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Good hourly rate – but no guaranteed hours
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Disadvantages of SelfEmployment
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No employee benefits
–
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–
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No
No
No
No
paid vacation
paid sick time
pension plan
health insurance
Fixed expenses but variable income
No employees to help with the work load
Liability risks
12
Characteristics of Successful
Self-Employed Actuaries
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Self-Motivated
Defined Market Niche
Strong Technical Skills
Good Communication Skills
Strong Sales Skills
Broad Range of Industry Contacts
Financially Prepared for Self-Employment
Financially Disciplined
13
Self-Motivated
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Personal Example
– Atlanta Olympics in 1996
– Office closed, worked at home
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My Solution:
– Separate Office
– Defined Office Hours
– Dedicated Phone Line (Cell?)
14
Defined Market Niche
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What “product” will you sell?
Hard to find work as a “generalist”
“Specialists” find work assisting with
special products
– Special projects may have funding
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Underselling the competition doesn’t
necessarily work
15
My Market Niche
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“Life Insurance Financial Reporting”
– That’s too general
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Examples of specific “products” I sell:
– Assistance with development, review, and assessment of
effectiveness of controls in USGAAP financial reporting
processes
– Implementation of financial reporting valuation systems
– Building and enhancing source of earnings analyses on
universal life and annuity blocks of business
– Actuarial audit support work to assist audit firms, state
insurance departments, internal audit departments
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Strong Technical Skills
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Expertise in subject matter
– Specialize
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Good computer skills are a must
– They don’t sell a project, but they’re
necessary to complete the project
– Microsoft products: Excel, Access,
Powerpoint, Visual Basic, Word
– Actuarial software – hands-on skills
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Communication Skills
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Necessary for sales presentations
Required for verbal communications
during a project
Critical when writing reports to
document findings
Start today to fine-tune your skills:
grammar and spelling matter!
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Sales Skills
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The best sales skills won’t help if you don’t have a
good product to sell
The best product won’t sell if you don’t have good
sales skills
Step one is to get in the door (the door of the
decision maker)
Many resources on effective sales techniques –
read books now and develop sales skills
Even if you are never self-employed, sales skills
help you sell yourself and your ideas in any job
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Industry Contacts
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Former Co-Workers
Actuarial Meetings
Actuarial Committees (SOA/CAS/AAA)
Former Clients
Cold Calls
20
Financial Preparation
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Expect Low Income First Few Years
Significant Fluctuations in Cash Flow
Start-Up Costs
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Computer
Software (including Actuarial software)
Office Equipment
Office Furniture
Legal Fees to Establish Business (Costs of Incorporation)
Website
Marketing Literature
Office Rental (Optional)
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Financial Preparation
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Fixed Costs
– Insurance:
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Professional Liability & Business Insurance
Medical, Disability & Life Insurance
Phone
Internet
Actuarial software
Actuarial Organization Membership Fees
Continuing Education Costs
Other costs
– Travel costs for sales calls
– Travel costs for on-site work
– Pension funding
22
Business Expenses:
Insurance
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Professional Liability Insurance
– $5,000+ per million coverage per year
– Large companies often require consultants to carry
coverage
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Business Owners Insurance
– $1,000 - $2,000 per year
– Large companies often require consultants to carry
coverage
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Medical Insurance
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–
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Likely to be individual coverage
Requires underwriting
Rates vary with age/sex/heath/other
May be $10,000+ per year
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Business Expenses:
Other
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Actuarial software license (optional)
– ~ $20,000 per year
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Society of Actuaries Dues (~$1,000)
Academy of Actuaries Dues (~$1,000)
Continuing Education
– Meeting fee (~ $1,000)
– Travel expenses (~ $1,000)
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Pension Plan
– Various options available
– Simplified Employee Pension (SEP) IRA
– Solo 401K
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Subscriptions to literature (acctg, tax, law)
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Test:
Financially Prepared?
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Are you a good money manager?
– Do you balance your checkbook?
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Are you a detailed-oriented bookkeeper?
Do you have a budget which shows in detail what
you make and what you spend?
Do you have other sources of funds with which to
support yourself in the early years of your new
business?
– Spouse’s income
– Savings
– Other ways to generate income (tutoring math, work for
actuarial or finance temp agencies, other)
25
Test:
Financially Disciplined?
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You find that your checking account balance
is up to $20,000. You are most likely to:
– A. Spend it
– B. Project the amount needed to cover future
cash flow requirements (estimate taxes, etc.)
and spend the rest.
– C. Save enough to cover future cash flow
requirements and save the rest to cover future
periods of lower cash in-flow.
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Test:
Financially Disciplined
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A. Likely to end up with IRS problems
B. On the right track, but need to
keep in mind that there are periods of
“feast” and “famine”.
C. Likely to succeed in the financial
aspects of running a small business.
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Recommendations
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Segregate business funds from personal
funds:
– Separate checking account
– Separate credit card
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Reconcile business accounts monthly
Bill clients monthly
Never delay payment of estimate taxes
Determine how to pay yourself:
– A percentage of gross receipts?
– A fixed amount per week or month?
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Monthly Cash Flow
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Even if income is fairly regular,
outflows are not.
Insert graph here showing monthly
cash inflows and outflows for CAC
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SBA
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Small Business Association provides
counseling, mentoring and training,
and loans
www.sba.gov
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Ten Steps to Starting a
Business (per SBA.gov)
1.
2.
3.
4.
5.
Write a business plan
Get business assistance and training
Choose a business location
Finance your business
Determine legal structure
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Sole proprietorship
Partnership
Limited Liability Corporate (LLC)
Corporation
S Corp
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Ten Steps to Starting a
Business (per SBA.gov)
6.
7.
8.
9.
10.
Register a business name with state government
Get a tax ID number
Register for state and local taxes
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State Tax ID Number
Workers’ compensation
Unemployment and disability insurance
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Federal, state and local licenses and permits
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Legal steps you need to take to hire employees
Obtain business licenses and permits
Understand employer responsibilities
http://www.sba.gov/sba-direct/article/2815
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Other SBA Resources
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Articles on self-employed and
independent contractors
Articles on minority-owned businesses
Articles on woman-owned businesses
Articles on veteran-owned businesses
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Women and Minorities
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A number of larger companies have
guidelines in place which require them
to use minorities and women for 10%
of their contract work
Typically accomplished by requiring
vendors to subcontract at least 10% of
their work to woman-owned or
minority owned businesses
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Minority-Owned Business
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Sample contract from large bank:
A “Minority-Owned Business” is a business
that is at least 51 percent owned, and
whose management and daily business
operations are controlled, by one or more
members of a socially and economically
disadvantaged minority group — namely,
U.S. citizens who are Black Americans,
Hispanic Americans, Native Americans,
Asian-Pacific Americans, or Asian-Indian
Americans.
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Woman-Owned Business
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Sample contract from large bank:
A “Woman-Owned Business” is a business
that is at least 51 percent owned by a
woman (or women) who is a U.S citizen,
controls the business by exercising the
power to make policy decisions, and
operates the business by being actively
involved in its day-to-day management.
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Woman/Minority
Businesses
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To qualify as a Minority or Woman-Owned
Business, the Business must be certified by an
official certification agency acceptable to Company
X. Vendor shall supply to Company X’s Vendor
Diversity Group copies of official certification
documentation.
Vendor’s goal is to subcontract a minimum of 10%
of the total dollar amount of this Agreement to
Minority and Woman-Owned Businesses annually
(the “Goal”). In order to balance Company X’s
overall spending, the preferred allocation of the
Goal is 7% to Minority Businesses and 3% to
Woman-Owned Businesses.
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Preparing to be a SelfEmployed Actuary
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Pass actuarial exams
Develop technical expertise
Identify market niche
Make industry contacts
Develop sales and marketing skills
Work for a consulting firm
Pay off personal debts
Save money
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Getting Started as a SelfEmployed Actuary
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Work for a consulting firm to learn the
business:
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Client development
Billing
Dispute resolution
Bidding projects
Develop base of contacts
THEN:
 Buy a business or
 Start a business (self or partnership?)
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Buying an Actuarial
Consulting Firm
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Pay based on expected future
revenues from existing clients
– How to finance?
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Advantage is that there are existing
clients
Disadvantage is that clients may
choose a different firm at sale
Requires careful transition
40
Starting an Actuarial
Consulting Business
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Advantage is no cash outflow to
purchase business
Disadvantage is that there are no
clients initially
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How to Set Billing Rate
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Convert former salary into hourly rate
– may be lower bound
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Consider rates charged by larger consulting
firms
– May be upper bound
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Consider risks inherent in the project
May accept lower rate on larger projects
Rate may vary seasonally (supply/demand)
– Audit firm rates higher January - March
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Billing Issues
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Fixed fee engagements can be big risk
– How to estimate hours
– Double your initial estimate?
– “The devil’s in the data”
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How to handle billing disputes
Safer to bill periodically (monthly)
rather than at project completion
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Billing Files
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Maintain detailed records for personal
records
Time “clocked in” and “clocked out” in
15 minute intervals
Task performed in each interval
Cumulative hours per month
Summarized statement sent to client
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Unbillable Time
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Marketing
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Sales calls
Website maintenance
Brochures
Writing articles, preparing presentations, brochures etc
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Negotiating contracts
Drafting engagement letters
Preparation of proposals in response to government “RFP”
Insurance applications and updates
Computer issues
Monthly billing and bookkeeping
Estimate tax payments
Administrative
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More Unbillable Time
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Travel time
Continuing education meetings
Some actuaries adjust hours billed:
– Factor adjustment when performing work for
which the actuary is overqualified (e.g., adjust
from FSA rate to ASA rate)
– May not bill for “re-do” of work
– May bill less after x hours per day
– Very judgmental
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Running a Small Business
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Consider need for clerical support
May require tax or other accounting
support
May require technology support
May require legal support
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Technology Support
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Computer issues –
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You are the help desk
Need good back-up systems
Need multiple computers
Need secure systems
Phone issues – cell phone as business
phone, quality issues?
Internet issues – have a backup plan
Can some of this be outsourced?
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Tax/Accounting Support
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Consider engaging a tax accountant to
assist with tax issues
– LLC or partnership => likely to file multiple state
tax returns
– Partnership => special partnership tax forms
– Self-Employment Tax
– Quarterly Tax Estimates
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Consider engaging an accountant to assist
with general bookkeeping (billing etc)
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Legal Support
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Consider engaging an attorney to
assist with:
– Establishment of business (incorporation
etc)
– Drafting of engagement letters
– Review of marketing materials
– Review of contracts
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Liability Risks
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Risk of Litigation
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Mispriced insurance product
Products priced with tax issues (IRC 7702)
Perceived poor advice related to acquisition
Violations of confidentiality agreements
Issues related to assumptions in pension
valuations
Professional liability insurance amounts may
not be adequate to cover a judgment
Liability insurance may not cover subcontractors
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Employees vs
Sub-Contractors?
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Employees typically require guaranteed income and
benefits
Employees create administrative burdens (benefits,
workers’ comp, unemployment insurance)
Subcontractors are paid only for hours worked
Different subcontract can be selected for each
project based on expertise required
How to structure subcontractor agreement
– “Subcontractor” has separate contract with client?
– Subcontractor gets x% of amounts billed to client?
– Subcontractor not paid until you are paid?
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Liability issues associated with subcontractors
52
Case Study A
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Background:
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– Several insurance
company jobs
– Consultant at
accounting firm
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Yrs in industry prior to
starting firm: ~15
Market niche:
– Financial reporting
– Audit support
Easing transition to
consulting:
– Spouse income
– Prior consulting
experience
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Initial contacts:
– Extensive
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Yrs as independent
consultant: 10+
Current position:
– Self-employed actuary
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Words of Wisdom from A
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“Poor planning on your part doesn’t
constitute an emergency on mine.”
– Except that as a self-employed actuary, it
does!!!
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A fail-proof “Get Rich Slow” scheme:
“Spend less than you make.”
My marketing strategy: “wait for the
phone to ring”
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Gross Revenue Percent
per Month (2008 – 2011)
14%
12%
10%
8%
Revenue
6%
4%
2%
0%
Jan
Mar
May
Jul
Sep
Nov
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Bus Exp/Tax: Percent per
Month (2008 – 2011)
30%
25%
20%
15%
Expense
10%
5%
0%
Jan
Mar
May
Jul
Sep
Nov
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Net Income: Percent per
Month (2008 – 2011)
20%
15%
10%
5%
Net Income
0%
-5%
-10%
-15%
Jan
Mar
May
Jul
Sep
Nov
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Case Study B
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Background:
– Trained in Systems/IT
before entering actuarial
profession
– Several insurance
company jobs
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Yrs in industry prior to
starting firm: ~10
Market niche:
– Systems conversions
– Experience studies
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Easing transition to
consulting:
– Spouse income
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Initial contacts:
– Limited
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Yrs as independent
consultant: 10+
Current position:
– Self-employed actuary
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Words of Wisdom from `B
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Represent yourself exactly as you are
(good and bad both)
Stay out of office politics
59
Case Study C
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Background:
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– CFO of large insurance
company
– Partner in accounting
firm
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Yrs in industry prior to
starting firm: 20+
Market niche:
– Group health insurance
– Litigation support
– Specialist in “Patient
Protection and
Affordable Care Act”
Easing transition to
consulting:
– Prior consulting
experience
– Savings & retirement
plans
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Initial contacts:
– Extensive
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Yrs as independent
consultant: ~10
Current position:
– Self-employed actuary
60
Words of Wisdom from C
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Financial (personal):
Financial planners generally suggest an emergency fund of 6 to 12 months.
Suggest at least double that for a self-employed actuary (or, a working spouse)
Suggest minimal fixed costs (especially housing and debt) since income will
almost certainly be very variable
Bookkeeping:
Need QuickBooks are some other business software
Keep accurate records and separate personal from business expenses
Be prepared for payroll processing complications – even if you pay someone to
process the forms.
Incorporating/professional liability:
Will probably want to form a company
But cannot avoid professional liability
Choose between LLC, S-Corp, or C-Corp (advantages and disadvantages of
each)
Probably want to purchase professional liability insurance
Hiring one person is a game changer
61
Words of Wisdom from C
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–
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Pricing your services
Should try to find hourly rates that peers and large consulting firms are charging for type of
consulting being considered
New jobs almost always take substantially more hours than you estimate but most companies
will not give you a blank check (i.e. hourly rate without estimated hours)
“Annuity” type engagements (i.e. repetitive) are nice but rare for most actuarial consulting
services. Also most price competitive
Responding to RFPs very time consuming and competitive
Marketing
Very personal/individual as to what works, if anything (i.e. almost certain that word of mouth
is best and requires having/getting a reputation)
A website, no matter how amateurish, is probably a must
Attending professional meetings is generally helpful. Opportunity to speak, network, and just
let others know you are alive.
Referrals may be reciprocated
Job performance
Client satisfaction a must – go the extra mile
Review Code of Professional Conduct and know what ASOP’s apply (see professional liability)
Every new job has enough wrinkles to make you uncomfortable (but must balance against
being “too uncomfortable”)
62
Case Study D
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Background:
– Several insurance
company jobs
– Consultant at
accounting firm
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
Yrs in industry prior to
starting firm: ~10
Market niche:
– Pricing
– Financial reporting
– Audit support

Easing transition to
consulting:
– Spouse income

Initial contacts:
– Moderate
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
Yrs as independent
consultant: ~5
Current position:
– Larger consulting firm
63
Case Study E
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Background:
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– Valuation Actuary at
large insurance
company
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Yrs in industry prior to
starting firm: ~20
Market niche:
– Financial reporting for
variable annuities
Easing transition to
consulting:
– Separation package
from prior employer

Initial contacts:
– Limited


Yrs as independent
consultant: < 5
Current position:
– Insurance Company
64
Case Study F
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Background:
– Several insurance
company jobs including
one start-up company
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Yrs in industry prior to
starting firm: ~10
Market niche:
– Financial reporting
– Reinsurance

Easing transition to
consulting:
– None

Initial contacts:
– Moderate


Yrs as consultant: < 5
Current position:
– Consulting firm
65
Case Study G:
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Background:

– AVP of Product
Development for life
insurance company
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
Yrs in industry prior to
starting firm: 9
Market niche:
– Initially: New product
development for small
companies
– Now: Mix of product
development & financial
reporting
Easing transition to
consulting:
– Revenue from insurance
sales
– Revenue from pension
TPA

Initial contacts:
– Limited


Yrs as consultant: 30+
Current position:
– Owner of mid-sized
consulting firm
66
Words of Wisdom from G
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Be fully committed to making it work
Put a lot aside for a rainy day
Learn sales and prospecting skills
– “G” worked with a group of agents while
starting his consulting firm, allowing him
to develop his sales skills
67
Case Study H

Background:
– Jobs at two life
insurance companies:
product development
and financial reporting


Yrs in industry prior to
starting firm: 10
Market niche:
– Initially: small to
medium size companies
looking for good service
at a low cost
– Actuarial temp services
– Regulatory services

Easing transition to
consulting:
– Hired by former
employer as consultant

Initial contacts:
– Fairly Limited


Yrs as consultant: ~25
Current position:
– Self-Employed Actuary


Grew consulting
business to point that
a larger firm bought
them out
Once again a selfemployed actuary
68
Words of Wisdom from H
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

During period of prosperity, keep on
marketing.
Service is your best asset.
There is no better marketing than word of
mouth testimony from your existing clients.
Do not do work if you are not comfortable –
either with your expertise or ability to do
the work the right way or with your client.
69
Other Comments from H
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
“I should have never succeeded, but I
was too young to know that.”
“Even as the firm grew, there were
periods of famine. There were several
months where my partner and I did
not take a salary to make sure that
there was sufficient cash to pay all the
employees.”
70
Case Study I:

Background:
– Pension consultant two
years
– Joined existing
insurance consulting
firm
– Became Partner, then
Owner, of firm

Market niche:
– Actuarial services for
small life ins companies
(pricing, valuation)
– Migrated to third party
administration work

Easing transition to
consulting:
– Joined firm as employee

Initial contacts:
– Firm’s existing clients


Yrs as consultant: 30
Current position:
– Owns consulting/TPA
firm
71
Words of Wisdom from I




“Words of wisdom are hard to come by.”
“I have not done anything particularly
brilliant, but have been presented with
some decent opportunities and not screwed
them up.”
“It seems today you would have to start out
with a larger consulting firm or company,
learn the ropes and take your shot when
you see the chance.”
“Maintaining a consistent and broad base of
clients is very difficult.”
72
What One “Big Four” Audit Partner
Liked About a Large Firm


Other actuaries and accountants to talk to
Quality control
– always someone to check/challenge what you're doing




Range of expertise
Variety of projects
Ability to have large clients, internationally
Clients on the forefront of issues
– always interesting and challenging

Ability to invest in development of service
capabilities
73
What One “Big Four” Audit Partner
Liked About a Large Firm

Established infrastructure for:
–
–
–
–
–
–
–
–
Space
Administrative support
Graphics
Liability insurance
Human resources
Benefits
Technology
Legal
74
One Audit Partner’s View:
Large vs Small Firm

Benefits over small firm are:
– Ability to do big projects for big clients in
multiple, international locations
– Integration with accounting and tax
expertise

Disadvantage is:
– Cost (higher billing rates)
75
Character Traits of
Successful Small Business
Owners
http://sbinformation.about.com/od/startingabusiness/tp/Character-Traits-OfSuccessful-Small-Business-Owners.htm
1.
2.
3.
4.
5.
Driven
Goal-Oriented
Confident
Passionate
Budget-Minded
6.
7.
8.
9.
10.
Self-Reliant
Humble
Resilient
Focused
Open-Minded
76
Ten Traits Small Business
Owners Need to Succeed
http://ezinearticles.com/?Small-Business---Ten-Traits-All-SmallBusiness-Owners-Must-Have-To-Be-Successful&id=380025
1.
2.
3.
4.
5.
Know Your Purpose
Have a Desire To
Succeed
Have Faith that you
can achieve what
you want
Have a Clear Plan
Have the Knowledge
6.
7.
8.
9.
10.
Be Prepared to Cooperate
Have the Will-Power
to Go On
Be habitual in all you
need to do
Maintain the Quality
Be 100% Persistent
77
Five Traits of a Successful
Small Business
http://www.investopedia.com/financial-edge/0910/6-Traits-Of-ASuccessful-Small-Business.aspx#axzz203xccWR1





Cater to a Niche Market
Get Cozy with Customers
Be Flexible
Focus on Skills
Get Lucky
78
Top Ten Reasons Small
Businesses Fail
http://boss.blogs.nytimes.com/2011/01/05/top-10-reasons-small-businessesfail/
1.
The math just doesn’t work
– Not enough demand at a price that will
be profitable
2.
3.
4.
5.
Owners who cannot get out of their
own way
Out-of-control growth
Poor accounting
Lack of a cash cushion
79
Top Ten Reasons Small
Businesses Fail (Continued)
6.
7.
Operational mediocrity
Operational inefficiencies
 Expenses too high
8.
9.
10.
Dysfunctional management
Lack of a succession plan
A declining market
80
Question & Answer Time
81
Resources

Smaller Consulting Section of SOA
– 600 Members, mostly pension
– Helps independent actuaries get
resources from SOA
– Provides training in presentations, etc.


Small Business Association – sba.org
SCORE (Service Core of Retired
Executives) – score.org
82
Professionalism

Self-employed actuaries need to
understand and follow professionalism
guidance issued by various actuarial
bodies
83
Professionalism






Revised Qualifications Standards
Continuing Education Requirement for
Professionalism Topics
Professionalism Topics Incorporated into
Actuarial Meetings
Web-Based Professionalism Presentations
Life & Health Qualification Seminar
Contingencies Articles on Professionalism
84
US Hierarchy of Professional Stds



Code of Professional Conduct
Actuarial Standards of Practice (ASOPs)
Applicability Guidelines
– For various tasks routinely performed by
actuaries, which ASOPs normally apply
– Organized by Specialty (Casualty, Health, Life,
Pension)


Practice Notes
Discussion Papers
85
Code of Professional Conduct



Effective January 1, 2001
Applies to all Academy Members
Identifies responsibilities actuaries have to:
– The public
– Their clients and employers
– The actuarial profession

Practice Only When Qualified
Divided into various “Precepts”

Full text at http://www.actuary.org/pdf/prof/code_of_conduct.pdf

86
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.”
87
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.”
– Refer to “Qualification Standards for Actuaries
Issuing Statements of Actuarial Opinion in the
United States”, effective January 1, 2008
– Can result in expulsion, suspension, reprimand
88
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.”
– Homework: Read all current and
proposed ASOPs at
“http://www.actuarialstandardsboard.org/asops.
asp”
89
Actuarial Standards of Practice
(ASOPs)



Provides Framework for performing
actuarial assignments
Offers guidance on relevant issues;
captures acceptable practices,
documentation, and disclosure
Plenty of room for actuarial judgment;
not narrowly prescriptive
90
Actuarial Standards of Practice
(ASOPs)



45 ASOPs
Most recent is #45: “The Use of Health
Status Based Rish Adjustment
Methodologies”
Widely Applicable:
– #23 Data Quality
– #41 Actuarial Communications


Exposure Drafts
Discussion Drafts (precede exposure drafts)
91
Precept 4:
Communication and Disclosure
“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.”
92
Precept 5:
Communication and Disclosure
“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.”
93
Precept 6:
Communication and 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.”
94
Precept 7:
Conflict of Interest
“An Actuary shall not knowingly perform Actuarial
Services involving an actual or potential conflict of
interest unless:
(a) the Actuary’s ability to act fairly is unimpaired;
(b) there has been disclosure of the conflict to all
present and known prospective Principals whose
interests would be affected by the conflict; and
(c) all such Principals have expressly agreed to the
performance of the Actuarial Services by the
Actuary.”
95
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.”
96
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.”
97
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.”
98
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.”
99
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.”
100
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.”
101
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.”
102