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Copyright © 2012 by the American Academy of Actuaries
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Professionalism and Precept 13:
How Do I Comply In A Self-Regulating
Profession?
Southeastern Actuaries Conference
Fall 2012 – Annual Meeting – Baltimore, MD
Pre-Meeting Seminar – November 14, 2012
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Panelists & Participants
Jeffrey C. Harper, MAAA, FSA, FCA, member of the
Committee on Professional Responsibility
Lloyd M. Spencer, Jr., MAAA, FSA, CERA, member of
the Committee on Professional Responsibility
You, our Esteemed Audience Members [MAAA, EA,
ACAS, FCAS, ACA, FCA, ASA, FSA, and/or CERA]
Copyright © 2012 by the American Academy of Actuaries
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Disclaimers
Please note that the statements and opinions expressed
herein are solely those of the panelists and do not
constitute official statements or positions of the American
Academy of Actuaries (“the Academy”), any boards or
committees of the Academy or any other organization of
which the panelists are members.
The included hypothetical case studies are for
discussion purposes only and are not intended to
provide specific guidance for any particular situation.
Please contact the ABCD for specific guidance regarding
your particular situation.
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Introduction to Professionalism
Overview of Professionalism Resources
[Partial] Index of Important References
An Overview of Precept 13
The Code, Discipline & Self-Regulating Professions
General Precept 13 Considerations
Issues Arising from the Practical Application of Precept 13
Hypothetical Case Studies
Questions
Agenda
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Introduction to Professionalism
Overview of Professionalism Resources
[Partial] Index of Important References
An Overview of Precept 13
The Code, Discipline & Self-Regulating Professions
General Precept 13 Considerations
Issues Arising from the Practical Application of Precept 13
Hypothetical Case Studies
Questions
Agenda
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The American Society of Pension Professionals &
Actuaries (“ASPPA”)
The Casualty Actuarial Society (the “CAS”)
The Conference of Consulting Actuaries (the “CCA”)
The Society of Actuaries (the “SOA”)
The Southeastern Actuaries Conference (the “SEAC”)
Other actuarial organizations
Other insurance organizations
The American Academy of Actuaries (the “AAA” or “the
Academy”)
Role of The American
Academy of Actuaries
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Activities of
The Academy
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Vision and Mission of
the Academy
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The American Academy of Actuaries’
mission is to serve the public
and the United States actuarial profession.
To accomplish this:
The Academy provides for the establishment, maintenance, and enforcement of high
professional standards of actuarial qualification, practice, and conduct;
The Academy advances actuarial practice by informing and educating its members on
public policy and professionalism issues and current and emerging practices;
[The Academy statement describes six other specific
activities – some also relevant to today’s topics]
Mission of
The Academy
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Introduction to Professionalism
Overview of Professionalism Resources
[Partial] Index of Important References
An Overview of Precept 13
The Code, Discipline & Self-Regulating Professions
General Precept 13 Considerations
Issues Arising from the Practical Application of Precept 13
Hypothetical Case Studies
Questions
Agenda
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Resources within
The Academy
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Resources within
The Academy
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Council on Professionalism Committees
The Council on Professionalism oversees the Academy's work on
professionalism issues. The council manages the work of its committees, task
forces, and work groups, which are listed here.
The Academy's vice president for professionalism, Karen Terry, heads the
council and also serves on the Board of Directors and the Executive
Committee.
Resources within
The Academy
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Resources within
The Academy
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Code of Professional Conduct
The revised Code of Professional Conduct took effect Jan. 1, 2001. The code
identifies the professional and ethical standards required of actuaries who
belong to the Academy. It sets forth what it means for an actuary to act as a
professional. It identifies the responsibilities that actuaries have to the public,
to their clients and employers, and to the actuarial profession. Identical codes
have been adopted by the Society of Actuaries, the American Society of
Pension Professionals and Actuaries, the Casualty Actuarial Society, and the
Conference of Consulting Actuaries.
Resources within
The Academy
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Preamble, Definitions, Precepts, and Annotations
Precepts – fourteen total
A command or principle intended as a general rule of action1
Identify the professional and ethical standards with which an
Actuary must comply in order to fulfill the Actuary’s
responsibilities to the public and to the actuarial profession2
Thirteen are “self-directed”; one is “other-directed”
Annotations – twenty-three total
A note added by way of comment or explanation1
Provide additional explanatory, educational, and advisory
material on how the Precepts are to be interpreted and applied2
1. From Webster 2. From The Code
Code of Professional
Conduct
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Resources within
The Academy
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Actuarial Standards of Practice
ASoPs provide guidance on the techniques, applications, procedures, and
methods that reflect appropriate actuarial practices in the United States.
[There are currently approximately 45 ASoPs
that have been adopted and remain in force]
Resources within
The Academy
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Resources within
The Academy
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Discussion Papers Discussion papers are primarily written and developed through the Academy’s
Committee on Professional Responsibility to promote actuarial
professionalism, including knowledge of standards of conduct, qualification,
and practice within the profession. These Discussion Papers suggest ways to
assist actuaries in improving their daily practice and increasing their
awareness of professionalism. Discussion papers are not promulgated by any
standard-setting body and are not binding upon any actuary.
[Nine papers have been written and accepted to date – and several
have been or are being revised. Soon there will be ten.]
Resources within
The Academy
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Introduction to Professionalism
Overview of Professionalism Resources
[Partial] Index of Important References
An Overview of Precept 13
The Code, Discipline & Self-Regulating Professions
General Precept 13 Considerations
Issues Arising from the Practical Application of Precept 13
Hypothetical Case Studies
Questions
Agenda
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Council on Professionalism
Actuarial Board for Counseling and Discipline (“ABCD”)
Actuarial Standards Board (“ASB”)
Code of Professional Conduct (the “Code”)
Actuarial Standards of Practice (“ASoPs”)
Discussion Papers
[Partial] Index of Important
References
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Introduction to Professionalism
Overview of Professionalism Resources
[Partial] Index of Important References
An Overview of Precept 13
The Code, Discipline & Self-Regulating Professions
General Precept 13 Considerations
Issues Arising from the Practical Application of Precept 13
Hypothetical Case Studies
Questions
Agenda
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PRECEPT 13
An Actuary with knowledge of an apparent, unresolved,
material violation of the Code [of Professional Conduct, or
“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.
Precept 13 Overview
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PRECEPT 13 Annotations
ANNOTATION 13-1. A violation of the Code is deemed
to be material if it is important or affects the outcome of a
situation, as opposed to a violation that is trivial, does not
affect an outcome, or is one merely of form.
ANNOTATION 13-2. An Actuary is not expected to
discuss an apparent, unresolved material violation of the
Code with the other Actuary if either Actuary is prohibited
by Law from doing so or is acting in an adversarial
environment involving the other Actuary.
Precept 13 Overview
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Introduction to Professionalism
Overview of Professionalism Resources
[Partial] Index of Important References
An Overview of Precept 13
The Code, Discipline & Self-Regulating Professions
General Precept 13 Considerations
Issues Arising from the Practical Application of Precept 13
Hypothetical Case Studies
Questions
Agenda
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Government-Regulated v. Self-Regulated Professions
Self-Regulatory Litmus Test: Consistent Delivery of Competent &
Ethical Services
Benefits of Professional Self-Regulation
Autonomy – Exercise of Professional & Personal Self-Determination
(within the bounds of the Litmus Test)
Imposition of Rational Requirements, Restrictions & Expectations
Risks of Professional Self-Regulation
Uneven Application of Discipline Perceived as Unfair?
Failure to Limit Unethical Behavior/Practice Invites a New Regulator
Recently, NAIC committees have been discussing adding regulation
to subject actuaries to discipline and control by state.
The Code, Discipline & Self-Regulating
Professions
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Holding a Self-Regulated Profession to a High Ethical
Standard – Key Components of any code of professional
conduct
Training & Admission Requirements
Continuing Education
Conduct
Qualification
Practice
Professional Discipline – The Means for Enforcing the
Tenets of Professional Self-Regulation on a Membership
The Code, Discipline & Self-Regulating
Professions
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Challenges Surrounding Observed Code Violations
“Should Consider” Discussion with the Questioned Actuary
Tattling v. Whistle-Blowing v. Upholding Professional Integrity
Time Commitment
Perceived Damage to One’s Own Professional Reputation
Why is Reporting of Observed Code Violations Required?
Active Compliance Monitoring by Actuarial Organizations is
Impractical
Violations Often Not Obvious to those Outside the Profession
Alignment of Public, Professional, and Personal Interests
The Code, Discipline & Self-Regulating
Professions
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Introduction to Professionalism
Overview of Professionalism Resources
[Partial] Index of Important References
An Overview of Precept 13
The Code, Discipline & Self-Regulating Professions
General Precept 13 Considerations
Issues Arising from the Practical Application of Precept 13
Hypothetical Case Studies
Questions
Agenda
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PRECEPT 13
An Actuary with knowledge of an apparent, unresolved,
material violation of the Code [of Professional Conduct, or
“the Code”] by another Actuary should consider
discussing the situation with the other Actuary and
attempt to resolve the apparent violation (emphasis
added).
Precept 13 – General Considerations
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“Apparent”
Clear, obvious, noticeable, or evident
“One can’t always judge a book by its cover”
Interpretation May Require Specialized Actuarial
Knowledge or the use of Actuarial Judgment
Operating with Incomplete Information
One need not be 100% certain that a violation has
occurred; the “issue” just needs to be apparent
Precept 13 - General Considerations
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“Material”
Precept 13, Annotation 13-1: A Code Violation is
deemed material if it is “important or affects the outcome
of a situation”
Review the Professionalism Discussion Paper on
Materiality at http://actuary.org/discussion-papers
Precept 13 - General Considerations
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“Unresolved”
Attempting Resolution is Not Required
Violations Observed in Draft Work Product or Processes
Under Development are Often Resolved through:
Self-Directed Research & Subsequent Revision
Peer Review
Review of Preliminary Findings with Principal User
Discussion(s) with a Questioning Actuary
Precept 13 - General Considerations
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Compliance with Code Precepts versus Deviation from an
Actuarial Standards of Practice (“ASOP”)
Thirteen of Fourteen Code Precepts Address Self-
Regulation of Personal Professional Conduct
Precept 13 Addresses Situations Involving the Professional
Misconduct of Another
Precept 13 - General Considerations
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The Practical Application of Precept 13 – Familiarity with:
the Code
Relevant ASOPs
Qualification Standards
Reliance on Common Sense
Communication and/or Reporting versus Investigation
Requesting Guidance from the Actuarial Board for
Counseling & Discipline (“ABCD”)
Precept 13 - General Considerations
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Introduction to Professionalism
Overview of Professionalism Resources
[Partial] Index of Important References
An Overview of Precept 13
The Code, Discipline & Self-Regulating Professions
General Precept 13 Considerations
Issues Arising from the Practical Application of Precept 13
Hypothetical Case Studies
Questions
Agenda
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Addressing Apparent Violations
Goal: Resolution via Common Understanding
Relationship between the Involved Actuaries
Colleagues
Subordinate / Manager
Adversaries
Inquisitive v. Accusatory Style
Form of Communication
Issue: One-on-One Resolution of
a Violation of the Code
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One-on-One Discussions May Preserve Confidentiality
while Achieving Resolution
Disclosure of a Violation is Not Required if doing so
Divulges Confidential Information
Precept 9 Permits Disclosure of Confidential Information if
Authorized by a Principal or Required by Law
Confidentiality May Be:
Required by Law or a court
Imposed by Contract or Agreement
Issue: Confidentiality
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The Code Defines Law as “Statutes, regulations, judicial
decisions and other statements having legally binding
authority”
Law that Imposes Obligations on an Actuary that Conflict
with the Code or ASOPs Takes Precedence
Disclosure of a Violation is Not Required if doing so would
be Contrary to Law
ASOPs Permit Deviation from Specific Guidance to
Comply with Law
Issue: Impact of Law
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Precept 2, Annotation 2-1 & Precept 3, Annotation 3-1
Preamble to the Code
Precedence of Foreign Law or Rules That Differ or Conflict
with the Code
Issue: Impact of Foreign Law
or Professional Code
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ASOP 41, Section 4 Addresses Disclosure Requirements
Related to an Actuary’s Deviation from ASOP Guidance
A Failure to Properly Disclose Such Deviation may give
rise to a Violation of the Code
Issue: Violations when Deviation from
ASOPs is Permitted
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Professional Judgment
Exercise of Professional Judgment
Reasonable Differences of Opinion
Presented such that it is recognizable when & where
Professional Judgment has been applied
Does Not Require Conformity of Conclusions
Issue: Impact of Professional Judgment
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Consider the Purpose of the Code
Consider Meanings within their Context of Use
Apply Common Sense
Reasonable Differences in Interpretation are to be
Expected
Open Lines of Communication
Issue: Subjective Interpretations of
Precept Language
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Undisclosed Knowledge of a Precept 13 Violation
The Questioned Actuary & Lack of Disclosure
Forum For Disclosure
Issue: Application of Precept 13
to Precept 13 Situations
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No Prescribed Timeframe
ABCD Complaint Process Rules of Procedure Outlined at
http://www.abcdboard.org/complaints
Discuss Complaint with ABCD Prior to its Formal
Submission
Submit Signed Description of Facts in Writing with any
supporting materials
Alternative Procedure for Anonymous “Information
Submission”
Issue: When Disclosure Should Be
Made Under Precept 13
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Introduction to Professionalism
Overview of Professionalism Resources
[Partial] Index of Important References
An Overview of Precept 13
The Code, Discipline & Self-Regulating Professions
General Precept 13 Considerations
Issues Arising from the Practical Application of Precept 13
Hypothetical Case Studies
Questions
Agenda
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You have been hired to direct the Actuarial and Valuation
functions of a medium-sized health insurer, replacing an
Actuary who recently retired & relocated out of the area
Following a detailed review of the Company’s financial and
valuation processes, you develop concerns regarding an
outdated statutory valuation approach used to determine
Long-Term Care Insurance Claim Reserves
Your back-of-the-envelope calculations suggest that LTC
Claim Reserves may be materially understated
Hypothetical Case Study A
Health Valuation - Procedural Concerns
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You contact the prior Actuary and discuss the situation,
learning that the prior Actuary’s recollection of the rationale
supporting the current valuation approach is fuzzy
When you press the prior Actuary for written
documentation supporting the current valuation approach,
the prior Actuary quickly terminates the conversation,
indicating that his obligation to provide actuarial support to
your employer ended at retirement
How Should You Proceed?
Hypothetical Case Study A
Health Valuation - Procedural Concerns
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Your actuarial consulting firm recently assumed the
actuarial duties for several small Defined Benefit pension
plans that previously relied upon an independent
Consulting Actuary for these same services
Your review of these plans uncovers several small errors in
the prior Consulting Actuary’s work, errors that were made
consistently in each plan valuation over several years
Individually, each error would be considered small &
immaterial to the valuation of any single plan
Hypothetical Case Study B
Small-Plan Defined Benefit Market - Cumulative Errors
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With the consent of all the Principals involved, you meet
with the prior Consulting Actuary and share the preliminary
results of your review; the prior Consulting Actuary admits
that the errors occurred and volunteers that the valuation
processes in question will be remedied
In return, the prior Consulting Actuary presses for your
agreement that, due to the immateriality of the errors for
any single plan, providing notification of this issue to the
Principals in the final report is unnecessary
How Should You Proceed?
Hypothetical Case Study B
Small-Plan Defined Benefit Market - Cumulative Errors
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You have prepared financial income statement projections
for your Division’s new life insurance product, based on the
pricing file developed under the direction of your Division’s
lead Product Development Actuary
While reviewing your projections with Division Senior
Management and the Product Development Actuary, the
Division head expresses concern that the pattern of gains
followed by losses illustrated in your projections will not be
favorably received by the Company’s Chief Financial
Officer, possibly derailing the new product’s launch
Hypothetical Case Study C
Product Development Projection
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Subsequently, the Product Development Actuary provides
a new pricing file that yields a revised pattern of earnings
which eliminates losses nearly all years. Your review of
the assumptions underlying both pricing files reveals that
significant changes were made, certain of which cause you
to question the basis for elements of both assumption sets.
You express your concerns to the Product Development
Actuary, who provides you with a written rationale for the
assumptions underlying each version of the pricing file.
How should you proceed?
Hypothetical Case Study C
Product Development Projection
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Your supervisor, a Principal of the actuarial consulting firm
that employs you both, is on vacation. A client calls with
questions regarding a report your supervisor recently
provided the client. During your review of the report and
supporting work file, it becomes apparent to you that your
supervisor violated the firm’s procedures and the Code.
In your supervisor’s absence, you prepare and provide
responses to the client’s immediate questions, but decide
against informing the client of your concerns without first
having discussed the matter with your supervisor.
Hypothetical Case Study D
Internal Reporting
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Upon your supervisor’s return to the office, you meet to
discuss your concerns. Your supervisor thanks you for
handling the client’s immediate questions and agrees to
schedule a follow-up meeting once a review the work files
and relevant client communications is complete.
Several weeks pass. You remind your supervisor that a
follow-up meeting hasn’t yet occurred. Your supervisor
informs you that the situation has been resolved, the client
is pleased, and that further discussions are unnecessary.
How should you proceed?
Hypothetical Case Study D
Internal Reporting
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Introduction to Professionalism
Overview of Professionalism Resources
[Partial] Index of Important References
An Overview of Precept 13
The Code, Discipline & Self-Regulating Professions
General Precept 13 Considerations
Issues Arising from the Practical Application of Precept 13
Hypothetical Case Studies
Questions
Agenda
Copyright © 2012 by the American Academy of Actuaries
All Rights Reserved 57
QUESTIONS?