An SAO By Any Other Name

By Andrea Sweeny
Chairperson, Committee on Qualifications

I am certain that William Shakespeare was not thinking about the U.S. Qualification Standards (USQS) or statements of actuarial opinion (SAOs) when he penned Juliet’s famous line “What’s in a name? That which we call a rose / By any other word would smell as sweet.”[1] Neither was Gertrude Stein, when she declared in 1913 that a “Rose is a rose is a rose is a rose.”[2] But the principle underlying these famously floral examples of the logical law of identity is one that actuaries can learn from: Whether an opinion expressed by an actuary is an SAO depends on the substance of the opinion, not on what the actuary calls it.

Precept 2 of the Code of Professional Conduct (the Code) states that an actuary “shall perform Actuarial Services . . . only when the Actuary satisfies applicable qualification standards.” According to the Qualification Standards for Actuaries Issuing Statements of Actuarial Opinion in the United States, “Actuaries who issue Statements of Actuarial Opinion when rendering Actuarial Services in the United States are required by the Code… to satisfy these Qualification Standards.”[3] For this reason, any actuary who is subject to the Code should understand what an SAO is.

The USQS provides a two-prong definition of an SAO. It is (i) “an opinion expressed by an actuary in the course of performing Actuarial Services”; and is (ii) “intended by that actuary to be relied upon by the person or organization to which the opinion is addressed.”[4] The USQS, and the answers to Frequently Asked Questions (FAQs) provided by the Academy’s Committee on Qualifications (COQ), contain important information on how to identify the elements of the SAO.

How have these two prongs been interpreted?

First, an SAO “must be based on actuarial considerations,”[5] and not merely involve numbers or calculations. FAQ 17, for example, explains that if an actuary states “the health care trend you have experienced is 10 percent,” based on compiled data alone without any actuarial considerations, the statement is not an SAO. By contrast, if an actuary states that “the expected health care trend for your commercial business for next year is 10 percent,” the statement would likely be an SAO because it involves actuarial considerations.

Second, the actuary must intend for the opinion to be relied upon by the person or organization to which the opinion is addressed. If the actuary does not intend for the actuary’s principal to rely upon the opinion, the actuary must clearly state this. However, even labeling an opinion “not to be relied upon” or a “draft” does not prevent reliance. Appendix 1 states, “if there is a reasonable likelihood that the Principal will rely on the draft regardless of intent, that is an indication that the draft is an SAO.”[6] If an actuary holds a position that is “non-actuarial in nature” or has “non-actuarial aspects,” the USQS are not intended to apply to oral or written statements issued “by virtue of the positions they hold and not because they are actuaries.”[7]

As the parsing of the elements of an SAO illustrates, the definition of an SAO in the USQS is very broad. SAOs can be written or oral. They can include internal or external company communications. They can be provided for compensation or gratis. They do not depend upon the status of the actuary as “working” or “retired.” Appendix 1 of the USQS describes SAOs and lists some examples of commonly issued opinions and work products and whether they are likely to be considered SAOs. Appendix 1 also describes generally what types of actuarial work involving government or other public sector actuaries may be considered SAOs.

As former Academy President Tom Wildsmith summarized: “Some might misunderstand this term [SAO] to be limited to a formal statement filed with a regulator—nothing could be further from the truth. A simple rule of thumb is that if I perform work that someone else relies on because I am an actuary, then the USQS likely apply.”[8]

Given the breadth of the definition and the fact that issuing even a single SAO requires compliance with the USQS, actuaries should ensure that they meet the USQS requirements. As the COQ stated in FAQ 15 regarding the interpretation of “gray areas,” “the Committee recommends that practicing actuaries endeavor to meet the USQS rather than expending time and energy trying to find interpretations that support exemption from the USQS.”

An SAO is an SAO is an SAO is an SAO.