Actuarial Standard Board
Introduction to the Actuarial Standards of Practice (ASOPs)
TO: Members of Actuarial Organizations Governed by the Standards of Practice of the Actuarial Standards Board and Other Interested Persons
FROM: Actuarial Standards Board (ASB)
SUBJ: Introduction to the Actuarial Standards of Practice (ASOPs)
This document contains the exposure draft of a proposed revision to the Introduction to the Actuarial Standards of Practice (Introduction).
Please review this exposure draft and give the ASB the benefit of your comments and suggestions related to the proposed changes. Each written response and each response sent by e-mail to the address below will be acknowledged, and all responses will receive appropriate consideration by the drafting committee in preparing the final document for approval by the ASB.
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Introduction to the ASOPs Revision
Actuarial Standards Board
1100 Seventeenth Street, NW, 7th Floor
Washington, DC 20036-4601
The ASB posts all signed comments received to its website to encourage transparency and dialogue. Unsigned or anonymous comments will not be considered by the ASB nor posted to the website. The comments will not be edited, amended, or truncated in any way. Comments will be posted in the order that they are received. Comments will be removed when final action on a proposed standard is taken. The ASB website is a public website and all comments will be available to the general public. The ASB disclaims any responsibility for the content of the comments, which are solely the responsibility of those who submit them.
Deadline for receipt of responses in the ASB office: August 22, 2008
In 1989, the ASB published a Preface to its standards written by eminent actuary Edward A. Lew. The Preface provided excellent insight into the nature of professions and the role that professionalism standards and disciplinary procedures play, with specific reference to those of the actuarial profession.
Since that time, there have been significant developments in the structure of the professionalism standards and disciplinary procedures of the actuarial profession. The ASB determined that it would be beneficial to adopt an introduction to the standards to offer actuaries guidance on the ASB’s operations, the content and format of standards, and the ASB’s intent with respect to certain terms that appear frequently in the text of the standards themselves. For these reasons, the ASB withdrew the Preface and prepared the Introduction to the Actuarial Standards of Practice (Introduction) in 2004.
Recently, the ASB concluded that a limited review of the Introduction was appropriate in order to clarify and update certain language. The exposure draft proposes changes in three areas.
First, it clarifies the language in sections 3.1.2 and 3.1.3 regarding the process that the ASB follows when developing ASOPs. Apparently, some actuaries have interpreted the current language to indicate that the Board merely codifies (or catalogs) current practices when developing an ASOP. The actual process in developing ASOPs goes well beyond a simple codification of practices. Therefore, the language in sections 3.1.2 and 3.1.3 was clarified to articulate more clearly the process the Board has been following to develop ASOPs.
Second, language in section 3.2.3 that related to prescribed statements of actuarial opinion was deleted in light of the new revisions (effective January 1, 2008) to the Qualification Standards for Actuaries Issuing Statements of Actuarial Opinion in the United States (Including Continuing Education Requirements).
Third, due to the current ASB project to standardize the “deviation” provisions in all ASOPs and move to the substantial guidance to ASOP No. 41, Actuarial Communications, the language in section 4.6 was substantially curtailed.
The Board is seeking comments on only these areas of the Introduction.
Actuarial Standards Board
Stephen Kellison, Chairperson
Albert Beer Robert Meilander
Alan Ford James Murphy
Patrick Grannan Godfrey Perrott
David Kass Lawrence Sher
Section 1. Overview
The Actuarial Standards Board (ASB) promulgates actuarial standards of practice (ASOPs) for use by actuaries when providing professional services in the United States. For purposes of this Introduction, Financial Reporting Recommendations and Actuarial Compliance Guidelines promulgated or republished by the ASB that have not been superseded are also ASOPs. This Introduction sets forth principles that have been broadly applicable to the work of the ASB since its inception. This introductory material is intended by the ASB to be part of the standards and to carry the same weight and authority as the ASOPs themselves.
Section 2. The Actuarial Standards Board
The ASB is vested by the U.S.-based actuarial organizations¹ with the responsibility for promulgating ASOPs for actuaries providing professional services in the United States. Each of these organizations requires its members, through its Code of Professional Conduct (Code)², to observe the ASOPs of the ASB when practicing in the United States. Actuaries who are required by their non-U.S. actuarial organizations to observe applicable standards of practice when providing professional services should also look to these ASOPs when practicing in the United States.
The ASB promulgates ASOPs through a notice and comment process described in the ASB Procedures Manual. The ASB has exclusive authority in the United States to determine whether an ASOP is needed in a particular practice area, to promulgate ASOPs, and to amend or withdraw ASOPs when, in the ASB’s judgment, such amendment or withdrawal is appropriate. The ASB is the final authority for determining the content of its ASOPs.
Section 3. Actuarial Standards of Practice
3.1 The Purpose of ASOPs
The ASOPs are not narrowly prescriptive and neither dictate a single approach nor mandate a particular outcome. ASOPs are intended to provide actuaries with a framework for performing professional assignments and to offer guidance on relevant issues, recommended practices, documentation, and disclosure. Each ASOP articulates a process of analysis, documentation, and disclosure that, in the ASB’s judgment, constitutes appropriate practice within the scope and purpose of the ASOP.
The process of developing an ASOP generally begins with the identification of practices that the ASB believes are broadly accepted by qualified actuaries as appropriate to the proper performance of a particular type of professional assignment or aspect of professional practice. After reviewing the current range of practices, the ASB determines whether it is appropriate under the circumstances to restrict or elevate practice to serve the public interest, to reflect recent advancements in actuarial science, or for other reasons. Additionally, the ASB provides supporting context to delineate how the level of practice may appropriately be achieved in specific situations.
The ASB seeks to define an appropriate level of practice, recognizing that the adoption of an ASOP and its subsequent use by practitioners and enforcement by the U.S. based actuarial organizations will have the effect of rendering practices described in the ASOP as “generally accepted.” Similarly, the ASB sometimes promulgates an ASOP in a new area of practice. Again, the ASB seeks to define an appropriate level of practice for actuaries working in the new area, often by looking at current practice in other areas. The process of exposure to the profession and other interested parties is intended to confirm the general range of practice and to seek input on the impact that the proposed ASOP would have on the level of practice.
ASOPs are intended for use by actuaries who, by virtue of having the necessary education and experience to understand and apply them, are qualified to make use of them. Other individuals should consider obtaining the advice of a qualified actuary before making use of or otherwise relying upon these ASOPs. ASOPs are not intended to shift the burden of proof or production in litigation, and failure to satisfy one or more provisions of an ASOP should not, in and of itself, be presumed to be malpractice.
The ASB recognizes that actuarial practice involves the identification, measurement, and management of contingent future events in environments that rarely, if ever, emerge exactly as projected. Moreover, the ASOPs are intended to provide guidance for dealing with commonly encountered situations. ASOPs take into account relevant issues arising from the scope of the assignment, limited information, time constraints, and other practical difficulties such as conflicts with regulatory or other restrictions. Actuaries in professional practice may also have to handle new or nonroutine situations not anticipated by the ASOPs. As a consequence, the actuary must be able to exercise professional judgment and relevant experience in applying an ASOP.
The ASOPs are principles-based and do not attempt to dictate every step and decision in an actuarial assignment. Rather, the ASOPs provide the actuary with an analytical framework for exercising professional judgment, identifying factors that the actuary typically should consider when faced with a particular type or aspect of professional service. The ASOPs intentionally leave significant room for the actuary to use professional judgment when selecting methods and assumptions, conducting an analysis, and reaching a conclusion, whether a single value or a range of values. Emphasizing process over outcome, the ASOPs recognize that actuaries can and do reasonably differ in their preferred methodologies and choices of assumptions and can reasonably reach differing opinions, even when faced with the same facts. Two actuaries could follow generally accepted practice, both using reasonable methods and assumptions, and reach appropriate results that could be substantially different.
There are situations where legislative or regulatory bodies or other professional organizations have established rules or requirements that are not in accordance with generally accepted actuarial principles and practice or where an actuary is prevented from applying professional judgment. To deal with these situations, the ASB provides guidance on compliance in such environments. ASOPs that focus on compliance issues typically contain the word “compliance” in their titles.
Unlike the ASOPs, which actuaries are required to observe, the actuarial literature provides information that an actuary might choose, but is not required, to consider when providing professional services. Practice notes published by the Academy, for example, describe various methods actuaries use to satisfy an ASOP or to comply with a legal or regulatory requirement, but do not purport to codify generally accepted practice and are not binding upon actuaries. Similarly, learned treatises, study notes, actuarial textbooks, journal articles, and presentations at actuarial meetings can be informative, keeping the actuary abreast of developments as actuarial science evolves, but do not establish binding requirements upon the actuary. Practice also evolves as actuarial research and literature document new methods and improved techniques, and generally accepted practice frequently comes into use through the profession’s collective adoption of techniques described in the actuarial literature. However, unlike the ASOPs, such literature is not binding upon the actuary, and the actuary can legitimately exercise professional judgment in deciding whether and how to make use of such materials.
3.2 The Format of ASOPs
Each ASOP document contains (1) a transmittal memorandum, (2) the ASOP itself, and (3) one or more supporting appendices.³
The transmittal memorandum and the appendices are not part of the ASOP and are nonbinding. The transmittal memorandum provides background information and a description of the key issues related to the development of the ASOP. The appendices (1) provide the background and historical issues involved and describe current or alternative practices and (2) summarize the major issues raised in the exposure process and their disposition by the drafting committee. Additional appendices may also contain supporting documents, bibliographies, or illustrative examples.
Each ASOP begins with two sections that (1) summarize briefly the purpose, scope, cross references, and effective date of the ASOP, and (2) define the special terms used within the ASOP.
a. The purpose and scope identify the intended application of the ASOP to the work of the actuary. In some instances, the actuary serves as an advisor to a principal and does not actually make decisions or take actions on the principal’s behalf. In those instances, the ASOP may indicate in its scope to what extent the ASOP addresses the actuary’s role in advising the principal. However, the ASOPs are not intended to make the actuary responsible if the principal acts contrary to the actuary’s advice.
b. Each ASOP has a specified effective date. Prior to that date, exposure drafts of the ASOP, and the ASOP itself from the date of its publication to its effective date, form part of the literature of the actuarial profession; actuaries may look to them at their discretion for advisory guidance. An ASOP is not binding, i.e., actuaries are not required to ensure that professional services performed by them or under their direction satisfy the ASOP until the effective date of the ASOP, because in adopting the ASOP the ASB may have defined a new practice or elevated practice, as described in section 3.1.3 above. In the case of a revision to an existing ASOP, the existing ASOP is binding until the effective date of the revised ASOP.
c. Each ASOP contains a list of definitions of terms used within it. Those terms are defined only for use in that particular ASOP, and the definitions can and do differ among ASOPs, reflecting different uses of language in various segments of the profession.
The other two sections of the ASOP (1) provide an analysis of issues and recommended practices and (2) address communications and disclosures.
a. The Analysis of Issues and Recommended Practices section is organized by major topics or issues, or by major tasks involved in completing assignments within the ASOP’s scope. Emphasis is placed on providing the actuary with an appropriate analytical framework for completing the assignment that is within the scope of the ASOP.
b. The Communications and Disclosures section contains a clause that describes what an actuary should do when, in the actuary’s professional judgment, a deviation from one or more provisions of the ASOP is deemed to be appropriate. Special communications or disclosures pertinent to the subject of the ASOP and applicable limitations are identified in this section. Where appropriate, reference may be made to applicable provisions of the Code.
Section 4. Compliance with ASOPs
Actuaries are required by Precept 3 of the Code to ensure that work performed by them or under their direction satisfies applicable ASOPs. ASOPs are, therefore, binding upon actuaries because failure to follow an applicable ASOP can breach the Code, rendering the actuary subject to the profession’s counseling and discipline processes.
Actuaries are expected to take a good faith approach in applying ASOPs, exercising good judgment and common sense; it would be inappropriate for any user of an ASOP to make a strained interpretation of the provisions of the ASOP.
Actuaries should observe those ASOPs that are relevant to the task at hand; not all ASOPs will apply. An ASOP should not be interpreted as having applicability beyond its stated scope and purpose. Most, but not all, of the ASOPs are task-specific, dealing with particular kinds of professional services performed by actuaries. A few ASOPs, however, deal more broadly with particular aspects of many types of actuarial assignments (for example, ASOP No. 23, Data Quality). Actuaries are responsible for identifying the ASOPs that apply to the task at hand. The Academy’s Council on Professionalism publishes advisory Applicability Guidelines to assist actuaries in identifying the ASOPs that may be relevant.
The ASB seeks to avoid creating conflicts between the ASOPs. When an actuary believes that two ASOPs have conflicting requirements when applied to a specific situation and neither ASOP provides explicit guidance concerning which of the two takes precedence, the actuary is encouraged to contact the Actuarial Board for Counseling and Discipline (ABCD) for confidential guidance on appropriate practice. Where two ASOPs have differing but not conflicting requirements, the ASB anticipates that the actuary will apply professional judgment to harmonize the two ASOPs in a reasonable fashion. The actuary may choose to seek confidential guidance from the ABCD to support the actuary’s judgment.
ASOPs frequently use a few terms that, while not defined within them, are integral to an informed reading of the ASOPs. For example:
Known: ASOPs frequently refer to circumstances, factors, practices of the principal, or other information or items that are known. The ASB recognizes that, in many cases, the actuary relies upon the principal and others acting on the principal’s behalf for information and cannot reasonably be expected to act based on information that was not provided to the actuary. Consequently, unless an ASOP clearly indicates otherwise, “known” means that the actuary had actual knowledge of the item in question at the time the actuary performed professional services under the ASOP.
Practical/Practicable: ASOPs frequently call upon actuaries to undertake certain inquiries, perform certain analytical tests, or make disclosures if it is “practical” or “practicable” to do so. Neither of these terms is intended to suggest that all possible steps should always be taken to complete an assignment. To the contrary, the constraints of a professional relationship or assignment and the specifics of a given environment frequently require the actuary to choose a course of action that is likely to yield an appropriate result without being unnecessarily time-consuming, elaborate, or costly relative to the principal’s legitimate needs. Thus, it is appropriate for the actuary, exercising professional judgment, to decide that the circumstances surrounding a particular assignment are such that it would not be practical or practicable to undertake a particular task. The actuary might choose to disregard items that, in the actuary’s professional judgment, are not material to the purpose and nature of the assignment.
Professional judgment: Actuaries bring to their assignments not only highly specialized training, but also the broader knowledge and understanding that come from experience. The ASOPs frequently call upon actuaries to thoughtfully apply both training and experience to their professional assignments, recognizing that reasonable differences of opinion are appropriate, if not inevitable, when professionals undertake to project the effect of contingent future events. The ASB anticipates that the actuary’s use of professional judgment will be presented in such a way that another qualified actuary would recognize when and where judgment has been applied, even if the other qualified actuary might disagree with the resulting conclusions.
Reasonable: In many instances, the ASOPs call for the actuary to take reasonable steps, make reasonable inquiries, or otherwise exercise reason when performing a professional service. The intent is not to require the actuary to go beyond what the actuary deems to be appropriate under the circumstances, given the nature of the assignment and the professional relationship and relevant business considerations. Rather, the intent is to call upon the actuary to exercise the level of care and diligence that, in the actuary’s professional judgment, is consistent with generally accepted actuarial practice and necessary to complete the assignment in an appropriate manner.
Reliance: The ASOPs recognize that actuaries are frequently required to rely upon non-actuaries such as other professionals, management, and trustees for information and professional opinions that are pertinent to an assignment. Similarly, actuaries often rely upon their actuarial colleagues to perform some component of a larger actuarial analysis in circumstances where it would be inappropriate or impractical for the actuary to redo the colleagues’ work or where the actuary would not be qualified to do so. Accordingly, the ASOPs usually permit the actuary to rely in good faith upon such individuals, subject to appropriate disclosure of such reliance.
The ASOPs make specific provision for those situations where the actuary deems it appropriate to deviate from one or more provisions of an ASOP. It is not a breach of an ASOP to deviate from one or more of its provisions if the actuary does so in the manner described in the ASOPs.
It may be appropriate for the actuary to deviate from one or more provisions of an ASOP, such as in situations that differ from those contemplated when the ASOP was adopted or where, in the professional judgement of the actuary, the application of a new practice based on recent advances in actuarial science would be more appropriate.
It is appropriate for the actuary to deviate from one or more provisions of an ASOP to the extent that a law, regulation, or other binding authority requires such deviation.
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1. The American Academy of Actuaries (Academy), the American Society of Pension Professionals and Actuaries, the Casualty Actuarial Society, the Conference of Consulting Actuaries, and the Society of Actuaries.
2. These organizations adopted identical Codes of Professional Conduct effective January 1, 2001.
3. With respect to how the ASOP document is organized, the current ASOP format differs from that of some earlier ASOPs, but all ASOP documents contain similar content, as described in sections 3.2.1–3.2.3 of this Introduction.