The PSA Code of Conduct

Professional Standards - Intro
• Whilst the Code of Conduct deals with broad
ethical and behavioural issues…
• …Standards of Practice are concerned with
specific behaviours required of the Actuary in
relation to particular practice area applications,
often in connection with statutory duties imposed
on the Actuary.
• Wide range of “style” between
general/generic/principles-based and
• Standards of professional performance and
• Developed to meet the expectations of users of
the professional services
• Provide guidance for
– dealing with commonly encountered problems
– Handling new problems & non-routine situations
• Ensure the high quality of professional services
• IAA, Associations in North America and in the UK, and
others have issued many Standards of Practice.
• Actuaries should take care to understand which
Standards of Practice (if any) apply to any Actuarial
Services they are providing.
• in some countries (eg China) actuarial standards of
practice are laid down by the regulator.
• In Israel:
– Distant past: uniform methods, assumptions etc.
– Work became diverse, non-uniform & complex: attempts to issue
standards (e.g. draft DAC recoverability standard 1998).
– Definition of “appointed actuary” and recognition of “actuarial
association” in law & supervisors regulations: encourages issuance
of standards. Interaction with anti-trust authority.
Importance of professional standards
• The beneficiaries:
- The general public (insured people)
- The regulator
- The government and legislation bodies
(Ministries of Finance, Labour, Health etc.)
- The companies we work for (Boards of Directors)
- Others we work with (accounting, risk
management, …)
- Actuaries
• The Faculty and Institute of Actuaries used to issue Guidance
Notes and has retained responsibility for a number of them.
• BAS (Board of Actuarial Standards) of the FRC (Financial
Reporting Council) - aim of supporting investor, market and public
confidence in the financial and governance leadership of entities by
setting high quality actuarial standards.
• The Actuarial Profession will continue to set ethical standards - The
Actuaries’ Code, which came into force on 1 October 2009, sets
out 5 core principles which actuaries are expected to observe in
their professional lives. It replaces the former Professional Conduct
Standards (PCS) and represents the corner-stone of a new system
of professional regulation for all UK actuaries.
Current UK Guidance Notes
1 Prudential supervision in the UK of life insurance
2 Financial Condition Reports (RP)
7 Relationship with auditors i.r.o. long-term business (RP)
8 Additional guidance on valuation of long-term business
40 Role of Actuarial Function Holder
44 Mathematical reserves & Resilience Capital Requirement
46 Individual Capital Assessment (RP)
47 Stochastic modelling (RP)
RP = Recommended Practice (otherwise Practice Standard)
22 Disclosure — FSA Rules
– Disapplied from November 2008 when abridged content was
incorporated into FSA rules
BAS book of standards
• Set of Technical Actuarial Standards (TAS) by December 2010
• Adopted Guidance Notes will (eventually) cease to apply
• Proposed TAS structure:
– Generic: Data, Modelling and Reporting
– Specific: Insurance, Defined benefit pension scheme funding, …
Reporting actuarial information TAS(R) – 24 September 2009
Data – exposure draft 28 May 2009
Modelling – exposure draft 28 May 2009
Insurance – exposure draft 4 September 2009
Background of Standards in US
• 1965: AAA formed; issued its own “Code”: Professional
Duty, Member’s responsibility & relationship to his
principal, Impartiality & independence, Advertising,
publicity, & relations with other members, Remuneration,
Use of titles
• 1970’s: “Standards” start to be developed in response to
guides/laws issued by AICPA, NAIC, Federal Gov’t, et al.
• 1988: ASB formed; given sole discretion to promulgate
actuarial standards of practice
Focus of Standards (US)
• Indicate how fundamental concepts & methodological
principles should be applied in a variety of circumstances
• 5 “Areas of Practice” within ASB, each with its own
operating sub-committee, charged with developing &
reviewing appropriate ASOP’s:
Format of Standards (US)
• Preamble
– Purpose, scope, effective date of Standard
– Definitions of special terms
– Background & historical issues
– Review of current & alternate practices
• Analysis of Issues & Recommended
• Communications & Disclosures
Relevant Standards for Casualty Practice
• ASOP #17 Expert Testimony by Actuaries
• ASOP #19 Appraisals of Casualty, Health, and
Life Insurance Businesses
• ASOP#20 Discounting of Property and Casualty
Loss and Loss Adjustment Expense Reserves
• ASOP #23 Data Quality
Relevant Standards for Casualty Practice
• ASOP #29 Expense Provisions in Property/Casualty
Insurance Ratemaking
• ASOP #30 Treatment of Profit and Contingency
Provisions and the Cost of Capital in Property/Casualty
Insurance Ratemaking
• ASOP #36 Statements of Actuarial Opinion Regarding
Property/Casualty Loss and Loss Adjustment Expense
• ASOP #39 Treatment of Catastrophe Losses in
Property/Casualty Insurance Ratemaking
• ASOP #41 Actuarial Communications
• ASOP #43 Property/Casualty Unpaid Claim Estimates
Applicability Guidelines
• The Code of Professional Conduct requires that actuarial services
satisfy applicable standards of practice.
• Non-authoritative guidance as to which actuarial standards might
apply to various assignments.
• The guidelines provide a list of the tasks normally performed by
actuaries in the different practice areas, and a list of ASOPs that are
usually applicable to each task
• List of tasks:
Expert advice, Witness, and/or Testimony
Financial Analysis, Projections, and Reporting
Product Development/Ratemaking/Pricing
Regulatory Issues/Filings
Practice Guidelines are educational and non-binding
in nature. They represent a statement of appropriate
practices, although not necessarily defining uniquely
practices that would be adopted by all actuaries.
They are intended to familiarise the actuary with
approaches that might appropriately be taken in the
area in question. They also serve to demonstrate to
clients and other stakeholders and to non-actuaries
who carry out similar work how the actuarial
profession expects to approach the subject matter.
So far evolved to supplement existing country standards
and to address new global/European subjects (IFRS,
Solvency II).
IASP 1 - Guidelines of Actuarial Practice for Social Security Programs
IASP 2 - Actuarial Practice
IASP 3 - Classification of Contracts
IASP 4 - Measurement
IASP 5 - Current Estimates
IASP 6 - Liability Adequacy Testing
IASP 7 - Discretionary Participation Features
IASP 8 - Changes in Accounting Policies
IASP 9 - Accounting for Reinsurance Contracts
IASP 10 - Embedded Derivatives and Derivatives
IASP 11 - Business Combinations
IASP 12 - Disclosure of Information about Insurance Contracts
Solvency II
Article 48 (2) of Solvency II Directive :
The actuarial function shall be carried out by persons
who have knowledge of actuarial and financial
mathematics, …, and who are able to demonstrate their
relevant experience with applicable professional and
other standards.
Actuarial function level 2 text (CEIOPS advice):
…, it is incumbent upon the undertaking to make sure
that persons charged with actuarial tasks have the
relevant qualifications, experience and knowledge of
applicable standards.
Groupe Consultatif submissions
Propose major role in developing standards
– public interest standards
(vs CEIOPS):
qualification standards (incl. CPD)
ethical standards
governance standards (incl. relationships)
communication standards
– technical standards
• interpretative standards
• technical implementation standards
– principles-based rather than prescriptive rules-based
– covering all aspects of actuarial function (possibly more)
Technical implementation standards
Might cover (more general than IAA):
– general principles
– data
– assumptions
– modelling
– monitoring experience
– evaluating underwriting policy
– evaluating adequacy of reinsurance
– effective implementation of risk management
Standards for other actuarial roles?
• although standards developed under Article 48(2) would
relate to actuarial function, Groupe could develop
standards more broadly for actuarial roles under Solvency
– risk management
– asset/liability management
– Solvency Capital Requirement (SCR)
– Own Risk and Solvency Assessment (ORSA)
– financial reporting for accounts
– market consistent embedded value
Experience in Israel (1)
• Existing mess (historical) of principles, methods and assumptions
applied in practice, especially in Life & Health reserving but also
pensions (“past” and “future” accrual) and P&C (discounting or
• Much of this does not have any formal regulations or other
guidance on which it is based. What is actuary’s responsibility for
applying and/or disclosing (inappropriate) methods, principles
(inconsistent) etc.
• Expectations of other parties (regulator, accounting profession,
reporting authorities, clients) –
– “What does the ILAA say you should do about…?”
– “What is the ‘normal’ actuarial ‘method’ for calculating reserves?”
– “Are there no actuarial standards that say how you should…?”
Experience in Israel (2)
• De-facto, what is actuary’s role, responsibility, and freedom
regarding methods, data and assumptions that he uses?
– Does he have default responsibility to check data, and what scope of
checking is considered “normal” or sufficient?
– To what extent, if any, can he absolve himself of this responsibility?
– What freedom exists regarding who takes responsibility for methods
and assumptions?
– If actuary uses assumptions set by client/regulator etc., does he have
responsibility to reject them if “unreasonable”, or to limit his opinion?
– If so, what process is expected from actuary in order to determine of
assumption is reasonable?
• What responsibility does actuary have to regulator or public
beyond the “dry” written regulations?
• What responsibility does actuary have to client (e.g. inform
client of issues and alternatives, or just do what client asks)?
Going forward in Israel
Individual Actuary:
• Guidance Notes, TAS and Actuarial Profession Standards
• From IAA, UK, US, Israel (?), CEIOPS (?)
– yardstick of professional conduct
– what is binding, formally and non-formally (e.g. FIA in Israel)?
– how to comply? — especially if not formally binding
Actuarial community:
• Role of actuarial association, and challenge of limited resources
• Role of “actuary” or actuarial profession as opposed to regulator,
accounting profession/board, Securities Authority, industry body…
• International / local (adoption/adaption/supplementation)
• Complying with instructions from Anti-Trust Authority