Transcript Ethics and Professionalism: A Consulting Actuaries Perspective

Ethics and Professionalism:
A Consulting Actuary’s
Perspective
Mary Frances Miller
CASE Meeting 4/1/03
Topics
Qualification
 Judgment
 Peer Review
 Documentation
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Qualification
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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.
Qualification
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How do I decide if I’m qualified?
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Do I have enough education?
Exams
 Other sources
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Do I have enough experience?
Same assignment
 Similar assignment
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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
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Education
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Experience
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Personal Lines ratemaking – 1984-91
Reinsurance ratemaking & reserving 1992-93
Risk retention consulting 1993-2003
Continuing Ed
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10 CAS exams (1988 syllabus)
CPCU / ARe
General ratemaking and reserving up to date
SoA Group Health Exam 8 – read partial syllabus
AAA Specific Qual Std for NAIC opinions
What am I qualified to do?
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Slam dunk: the stuff I do every day
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Reserves and forecasts for risk retainers
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WC / GL / AL / HPL / E&O / 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 & rrg’s
Forecast allocations
What am I qualified to do?
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A little stretch: things I do less often
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Doctors’ MPL
Self-insured health reserves
Insurance company reserves
Large commercial
 “Standard” coverages
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Cash flow studies (not really DFA)
What am I qualified to do?
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A bigger stretch: things I can do with
some additional preparation
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Captive feasibility studies
Do I know enough about venues & taxes?
 Are my accounting skills sufficient?
 Can I get adequate peer review?
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Self-insured individual long term disability
Am I making the right assumptions?
 Am I applying appropriate techniques?
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“Simple” DFA
What am I NOT qualified for?
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Health insurance ratemaking
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Personal lines ratemaking
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Assessment spiral
Although I would be comfortable with a peer
review role
Commercial lines ratemaking – most lines
Other benefits work
Complicated DFA
Actuarial Judgment
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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.
Actuarial Judgment
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3.5.2 Changing Conditions—The 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. . .
Actuarial Judgment
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. . . The actuary should obtain information from
the entity regarding the significant changes in
the practices or philosophy used by the entity’s
claims personnel and ascertain whether such
changes are likely to have a material effect on
the results of the actuary’s reserve analysis or
on the risks and uncertainties associated with
the reserves.
Actuarial Judgment
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The latest diagonal in the incurred triangle
is up; No apparent changes in the
payment pattern
Reserve strengthening or deterioration?
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What are the consequences of my assumption
if I’m wrong?
How can I frame my questions so that the
client doesn’t know the “right” answer?
Actuarial Judgment
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Incurred diagonal is down; payment
pattern is unchanged
Reserve weakening or improved
experience?
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What are the consequences if I’m wrong?
How many additional tests should I do?
How should I document my judgment?
Peer Review
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Pre-Project Planning
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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
Peer Review
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Calculation Review
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We all make mistakes
Good spreadsheet design and consistency in
presentation of exhibits eliminate many
mistakes
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But may cause me to be lazy in my judgments!
Can be conducted by an analyst
Does every calculation need to be
checked?
Peer Review
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Methodology Review
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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
Control Cycle: The next time around
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How accurate was my last projection?
Was I consistently off?
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Or does the variation appear random?
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Prior assumptions were incorrect
Stuff happens
Do my changes in conclusions make sense
in light of the current data?
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Can I explain what happened to the client?
Documentation
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What did we agree to do?
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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
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What data did we ask for?
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What did we get?
Was it what we needed?
Was it consistent with prior data?
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What did I do to fix it?
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Or was it internally consistent?
Who did I talk to – e:mails to confirm?
What constitutes documentation that the data
didn’t need adjustment?
Documentation
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Was I qualified?
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What standards applied to the project?
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Should I document in the project?
Did I follow them?
How do I document this? Do I need to?
What techniques did I use?
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Should I document what I decided NOT to
use?
Documentation
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Did I release any draft conclusions to the
client?
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What do I mean by a draft?
Did I document that to the client?
What changed in the final report?
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Did I meet with the client?
What did I learn that changed my
assumptions?
Documentation
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Can another actuary follow my
calculations?
Was there peer review?
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Did I follow up with the client?
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What did the peer reviewer conclude?
Did I make appropriate changes?
Were they satisfied?
Was there additional follow up?
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Auditors, regulators, etc.
Professionalism
Don’t leave home without it.