Professionalism Counts, April 2023
A Framework for Professional Judgment
The actuarial profession is rare in that it has, for the most part, successfully remained self-regulated. Decades ago, actuaries established standards for conduct, qualifications, and practice, as well as a means for enforcing them.
Because these standards are principles-based, and used in an environment of risk and uncertainty, professional judgment plays a vital role—not just in actuaries’ day-to-day work, but in maintaining the profession’s ability to self-regulate. Professional judgment must be exercised with skill and care to maintain the trust of the public, of principals, and of government entities.
The ability to use professional judgment doesn’t give actuaries an entirely free rein—actuaries exercise professional judgment within the framework provided by the Code of Professional Conduct, the Qualification Standards for Actuaries Issuing Statements of Actuarial Opinion in the United States (USQS), and actuarial standards of practice (ASOPs).
For example, professional judgment is needed to determine whether you are qualified to take on a particular actuarial assignment. Professional judgment is also needed when performing actuarial services.
Indeed, the ASOPs rely on professional judgment—ASOP No. 1, Introductory Actuarial Standard of Practice, tells us that the ASOPs provide a basic framework that is intended to accommodate considerations beyond those listed in an ASOP, such as:
- legal and regulatory requirements;
- professional requirements promulgated by employers or actuarial organizations;
- evolving actuarial practice; and
- the actuary’s own professional judgment formed by the nature of the engagement.
The ASOPs direct actuaries to perform actuarial services in a professional manner. This involves applying relevant training, knowledge, and experience, which combine to form actuarial expertise, within the context provided by applicable ASOPs to make informed decisions about courses of action that are appropriate in the circumstances.
As ASOP No. 1 states in its discussion of professional judgment:
Actuaries bring to their assignments not only highly specialized training, but also the broader knowledge and understanding that come from experience. For example, the ASOPs frequently call upon actuaries to apply both training and experience to their professional assignments.
The use of “frequently” here is accurate—every ASOP currently in effect explicitly refers to the use of “professional judgment.”
ASOP No. 1 also states that although the ASOPs are intended to provide guidance for common situations, actuaries “may also have to handle new or non-routine situations not anticipated by the ASOPs,” and calls on actuaries to exercise professional judgment “in all situations,” whether common or not.
Because the ASOPs are principles-based, they do not dictate every step and decision in an actuarial assignment. Instead, they provide an analytical framework for exercising professional judgment by identifying factors that actuaries should take into account when providing a particular type of actuarial service.
Thus, under the ASOPs, professional judgment is used in conjunction with guidance provided in an ASOP when selecting methods and assumptions, conducting an analysis, and reaching a conclusion. It also plays a role in determining whether something is material, practical, or reasonable and whether and to what extent an actuary can rely on others for various inputs to an assignment.
Actuaries can even use professional judgment to conclude that complying with a particular piece of guidance in the ASOP “would be inappropriate, given the nature of the assignment and the principal’s needs.” Such deviations are permitted, as long as the deviation and the reasons for it are disclosed.
It is important to point out that when ASOPs direct actuaries to use “professional judgment,” they are not only directing actuaries to apply their specific training, knowledge, and expertise to an assignment; they are directing actuaries to base their judgment on standards of professionalism and on the Code of Professional Conduct. In this way, use of the term “professional judgment” provides guidance to the actuary and relevant information to the public.
For more Academy resources and information on topics related to professionalism and practice, visit the Academy website.