The developments of the past month have left a lot of us communicating remotely. It’s important to remember that professional actuarial work is not just about the numbers—it’s also about clear communication. Because actuaries have expertise that others don’t have, they must take care to present their findings in a way that the users of the work, who in many cases are not other actuaries, can understand. The importance of clear communication is emphasized by Precept 4 of the Code of Professional Conduct:
The importance of clear communication is emphasized by Precept 4 of the Code of Professional Conduct:
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.
Let’s focus on that language. What actuarial standards of practice (ASOPs) apply? How might a communication change depending on the circumstances and the intended audience?
If you intend for anyone to rely on the results of your work (also known as the actuarial findings), you should complete an actuarial report. The actuarial report should “state the actuarial findings, and identify the methods, procedures, assumptions, and data used by the actuary with sufficient clarity that another actuary qualified in the same practice area could make an objective appraisal of the reasonableness of the actuary’s work as presented in the actuarial report.”
Disclosures are an important part of any actuarial communication. They let the user know what was considered, what assumptions and methods were used, and whether the actuary believes the assumptions to be reasonable. In some cases, the rationale for the actuary’s decisions about these considerations should also be disclosed. Section 4.1.3 of ASOP No. 41 contains a useful (though not exhaustive) list of items that should be disclosed. It’s also important to check to see whether other ASOPs that apply to an assignment have further disclosure requirements. Disclosures mandated by ASOP No. 41 include cautions regarding uncertainty or risk, any conflicts of interest, and reliance on other sources for data and other information, and who is responsible for assumptions and methods. It should be noted that “an actuarial communication should identify the party responsible for each material assumption and method. Where the communication is silent about such responsibility, the actuary who issued the communication will be assumed to have taken responsibility for that assumption or method.”3 That is, if you don’t clearly state someone else is responsible for a material assumption or method, you are responsible.
Now let’s turn to how a communication might change based on the circumstances and intended audience. In some circumstances, including all supporting information in an actuarial communication may be impractical or unnecessary. Appendix 1 of ASOP No. 41 gives examples of such circumstances, noting that, “This may be particularly common in a company environment. Other circumstances such as severe time constraints (for example, union negotiations, mergers and acquisitions) may make inclusion of all recommended disclosure items impractical, if not impossible. … These situations are addressed in section 3.3.” Section 3.3 recognizes that although circumstances may place constraints on an actuarial report, “the actuary must be prepared to identify such circumstances and justify limiting the content of the actuarial report.”
The language used in a report depends very much on who the intended user—defined as any person who the actuary identifies as able to rely on the actuarial findings—is. What may be clear to an actuary may not be clear to non-actuaries. What may be clear to another financial professional may not be fully understood by a layperson. If the intended audience is fellow actuaries, it may be appropriate to use technical language, because the audience will understand. For a non-actuary generally familiar with the topic discussed, slightly less technical language may be appropriate. When communicating with the general public, every effort should be made to use plain language.
Like nearly everything in the Code and ASOPs, the need for clear language and disclosures can be traced back to 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.” The intended audience relies on the information contained in actuarial communications to make decisions that will affect the ultimate end-user or beneficiary. Language and disclosures that are clear to the intended audience help them understand the actuarial findings and to what extent those findings can be relied upon—and thus help fulfill the profession’s responsibility to the public.
1. ASOP No. 41, section 3.2.
2. Ibid., Section 3.2.
3. Ibid., section 3.4.4.
4. Ibid., Appendix 1 (last paragraph).
5. Ibid., section 3.3.
6. Ibid., section 2.7.