Professionalism Counts, February 2018

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Disclosure: The Cornerstone of the ASOPs’ Strength

By Beth Fitzgerald
Chairperson, Actuarial Standards Board

When the Actuarial Standards Board (ASB) develops a new actuarial standard of practice (ASOP) or revises an existing one, the ASB members think very carefully about the disclosures that an actuary will need to make to comply with the standard. In my view, disclosures give the ASOPs strength: By requiring actuaries to explain how they complied with the required analysis and followed the recommended practices in the course of providing actuarial services, disclosures help the intended users understand the actuary’s findings and to what extent they can be relied upon. As a result, I often find myself referring to the disclosure requirements as the “teeth of the standard.”

In addition to the ASOP-specific disclosures required in section 4 of every ASOP, ASOP No. 41, Actuarial Communications, requires actuaries to make extensive disclosures in every actuarial communication, including the intended user of the communication; scope and purpose of the assignment; the actuary’s qualifications; cautions on risk and uncertainty; limitations or constraints; conflicts of interest; the information date; subsequent events; and reliance on and assessments of assumptions, data, and other information supplied by others. Actuaries are required to include disclosures in both internal and external communications.

But by requiring all of these disclosures, are the ASOPs requiring actuaries to bite off more than they can chew?

I don’t think so.

Disclosure obligations have roots in precepts 3 and 4 of the Code of Professional Conduct (Code). Precept 3 requires an actuary “to ensure that Actuarial Services performed by or under the direction of the Actuary satisfy applicable standards of practice.” Precept 4 requires an actuarial communication to be “clear and appropriate to the circumstances and its appropriate audience,” but also to “satisf[y] applicable standards of practice.”

The reason for disclosures is straightforward. Actuaries have highly specialized knowledge and experience, and provide services that touch on ordinary people’s lives, health, property, retirement, and financial security. Because actuarial work requires such specialized knowledge and experience, actuaries may be perceived as magicians of a sort, pulling numbers out of a black box. But, as Bob Beuerlein, immediate past president of the Academy has stated, “Actuaries should not be viewed as magicians. … [They] have an obligation to dispel any perception that they use a ‘black box’” to provide actuarial services.[1]

Clear communication and disclosures are the tools we have to eliminate any black box perceived to exist in actuarial work. ASOP No. 41 requires the actuary to “state the actuarial findings, and identify the methods, procedures, assumptions, and data used by the actuary with sufficient clarity that another qualified actuary in the same practice area could make an objective appraisal of the reasonableness of the actuary’s work as presented in the actuarial report.”[2] These requirements support actuaries in performing actuarial work in an appropriate and reasonable manner, even in cases where they may be pressured to do otherwise. As a reminder, if actuaries have questions about professionalism issues, they can always contact the Actuarial Board for Counseling and Discipline with a confidential request for guidance.

Because the ASOPs have a broad and long-recognized role “in protecting the public by defining what constitutes appropriate actuarial practice,”[3] and the ASB has long considered disclosures to be an essential element of appropriate actuarial practice, it follows that an actuary’s compliance with disclosure obligations is closely related to protecting the public. A former ASB chairperson explained it this way: “The evolution of actuarial disclosures today is to assume a broader responsibility for our reports. As an actuary, you have a responsibility to your profession and your communications that takes you beyond being a glorified spreadsheet.”[4]

By complying with the disclosure obligations of the ASOPs, an actuary not only demonstrates accountability for and ownership of a particular work product, but strives to meet the requirements of the Code: “to fulfill the profession’s responsibility to the public and to uphold the reputation of the actuarial profession.”[5]

(Featured in the February 2018 Actuarial Update.)

[1] Beuerlein, Bob, “Creating Your Glass Box,” Contingencies, July/August 2017, p. 8.
[2] ASOP No. 41, Section 3.2.
[3][3] Wildsmith, Tom, “The Academy and the Web of Professionalism, Part 3,” Contingencies, November/December 2016, p. 18.
[4] Beer, Al, “Professionalism Webinar: Disclosure in the Real World: ASOP No. 41 Case Studies,” Actuarial Update, June 2014, p. 4.
[5] Code of Professional Conduct, Precept 1.