UP TO CODE
This is a regular column in Contingencies. Written mainly by members of the Actuarial Board for Counseling and Discipline, "Up to Code" articles reflect the wide variety of issues that are brought to the ABCD’s attention during the request for guidance and complaint processes.
IF YOU WANT TO GROW BIG AND STRONG, EAT YOUR SPINACH
The other day at the gym, there was this guy wearing a T-shirt that read, “And planks don’t like you either.” For those who may not be familiar, a plank is an efficient exercise to strengthen your core in which you take a push-up position on your forearms, and hold. I am not particularly fond of them, but they are an essential part of my fitness routine.
Anyway, the T-shirt got me thinking. What else is there that I may not like, but which is good for me? Vegetables? Half-marathons? And perhaps even the Code of Professional Conduct? Many kids do not like spinach, but they are still required by their parents to eat it simply because spinach is good for them and will help them grow “big and strong.” Similarly, actuaries are required to follow the Code of Professional Conduct—even when they might prefer not to do so—because adherence to the Code helps keep the profession strong.
As a member of the Actuarial Board for Counseling and Discipline (ABCD), I often respond to requests for guidance (RFGs). In fact, the majority of the ABCD’s work is devoted to responding to RFGs from actuaries on a wide range of practice, conduct, and qualification questions. Our objective is simple—to improve actuarial practice and give confidence to the public.
Lately, however, it seems that Precept 3 of the Code has been the subject of a number of RFGs and even some complaints from actuaries who have contacted the ABCD. Precept 3 says:
An Actuary shall ensure that Actuarial Services performed by or under the direction of the Actuary satisfy applicable standards of practice.
While the Actuarial Standards Board (ASB) is charged with establishing appropriate actuarial standards of practice (ASOPs), it falls to the ABCD to assess compliance with these standards. In recent years, the ASB has established new standards of practice (ASOP Nos. 51 through 54 are newly effective in 2018) and has also revised many existing ASOPs. Some of the exposure drafts of proposed new and revised standards generate relatively few comments; the 2014 exposure draft to the updated pension ASOP No. 34 generated only five comments, for example. Others generate significant numbers of comments, and sometimes even vigorous disagreement, all of which the ASB considers and uses in its deliberative process. There are a number of cases where the ASB has had to issue a second or third exposure draft and considered a fourth.
At the end of the day, the ASB considers the comments received and makes a decision—carrying out the charge set forth in the Academy bylaws to expose, promulgate, publish, and review actuarial standards of practice. And then actuaries need to apply those standards to their day-to-day work. In some cases, an actuary may not be sure how an ASOP applies to a particular situation. They can reach out to the ABCD for guidance. As a former ABCD member explained:
“The existence of a robust mechanism for providing expert guidance and counseling to individual actuaries tells the public that actuaries who have questions about their work can find help to discern the ethically correct direction and that actuaries who stray from the profession’s standards of conduct, qualification, and practice will be guided back to them. Individual requests for guidance and counseling sessions are kept confidential to facilitate communication, promote candor, and protect reputations.”
So far, I think I have describing motherhood and apple pie, not spinach. But I have noticed during my tenure on the ABCD that some of the requests for guidance to which I have responded reflect the actuary’s displeasure with change when it comes in the form of new or revised ASOPs. The actuary would prefer the status quo. While I may be a bit sympathetic—admittedly, I’m rarely the first to jump up and embrace change—I remind the actuary that we have a professional responsibility to follow the ASOPs. And, under the Code, this includes a clearly stated obligation “to keep current regarding changes in these standards.”
When I hear these types of complaints, I often spend time with the actuary looking at the comments received by the ASB (and the ASB’s responses to those comments) during the exposure process. Very often, the concern being raised by the actuary in the RFG may have been acknowledged and addressed by the ASB following the exposure process. In these situations, I remind the requestor that the ABCD takes compliance with the ASOPs very seriously—and if the ABCD received a complaint associated with an actuary who deviated from the provisions of the ASOP (particularly in situations addressed by the ASB in the drafting process), the ABCD would carefully scrutinize the reasoning and rationale behind the position taken by the actuary. The ABCD would usually expect to see written disclosure in the actuary’s report backed up by analyses that justified the position as acceptable. In short, it would be up to the responsible actuary to justify the position taken. This is spelled out in section 4.4 of ASOP No. 41, which describes how an actuary can comply with an ASOP while deviating from its guidance by “providing an appropriate statement in the actuarial communication with respect to the nature, rationale, and effect of such deviation.” It is also rooted in Annotation 3-3 of the Code: “When an Actuary uses procedures that depart materially from those set forth in an applicable standard of practice, the Actuary must be prepared to justify the use of such procedures.”
As a profession, we have embraced change as part of fulfilling our “responsibility to the public and to the actuarial profession”. We have charged the ASB with both establishing actuarial standards of practice and revising those standards as necessary so they remain current and relevant and continue to define appropriate actuarial practice.
We may not like a decision of the ASB, but that does not mean we are exempt from following it when a new or revised standard of practice is applicable to the actuarial services we provide. Simply put, we have to eat our spinach or be prepared to justify why we are not doing so. As far as I am concerned, that is the only way for an actuary and the profession to continue to grow big and strong.
JOHN STOKESBURY, MAAA, FSA, FCA, EA, is a member of the Actuarial Board for Counseling and Discipline.
 cf. ASOP 1 Section 1, “The ASB establishes and improves standards of actuarial practice. These ASOPs identify what the actuary should consider, document, and disclose when performing an actuarial assignment. The ASB’s goal is to set standards for appropriate practice for the U.S.”
 Janet Fagan, “ABCD Guidance: A Critical Element of Actuarial Self-Regulation,” Actuarial Update, October 2016
 Code, Annotation 3-3.
 Code, Preface.