Change for the Better—The Revised ASOPs Adopted in 2016

By Beth Fitzgerald
Vice Chairperson, Actuarial Standards Board

“Change is inevitable. Change for the better is a full-time job,” a well-known American statesman once declared.1 The founders of the Actuarial Standards Board (ASB) were undoubtedly inspired by a similar recognition that actuarial science and techniques, as well as the legal and business context in which U.S. actuaries operate, are constantly evolving and that managing that change for the better requires a permanent standards-setting body. This is one reason why the visionaries who formally established the ASB in 1988 determined that one of its key functions would be “to provide continuous review of existing Actuarial Standards of Practice and determine whether they are in need of amendment, alteration, expansion, or elimination.”2 The three revised ASOPs adopted by the ASB in 2016— ASOP Nos. 21, 23, and 24—illustrate how the ASB continues to uphold this charge.

The revisions to these three ASOPs, like many other revised ASOPs the ASB has adopted over the years, resulted from the ASB’s continuous monitoring of developments in actuarial practice, law, and the business environment. As a part of its review, the ASB seeks and receives a wide range of ideas and viewpoints from within the profession, and also from outside the profession. When an ASB committee or task force is charged with developing a draft of a revised standard, it goes through the ASB’s well-defined and documented process of review, approval, exposure, and revision before the ASB considers it for adoption. This process shows that, true to the vision of its founders, the ASB has its fingers on the pulse of the profession and that the ASB understands that defining appropriate practice in an ever-changing world requires constant vigilance.

The brief summary below describes some of the key changes in each of the standards that the ASB revised in 2016, and characterizes developments in actuarial practice, law, and the business environment that led to them.

ASOP No. 21, Responding to or Assisting Auditors or Examiners in Connection with Financial Audits, Financial Reviews, and Financial Examinations. The prior version of ASOP No. 21 was adopted in 2004 and did not address the actuary’s responsibility with respect to the process and controls in the Sarbanes-Oxley environment nor take into account the NAIC’s Model Audit Rule. In addition, a revision was needed to address the fact that audits, reviews, and examinations are increasingly conducted on a risk-focused basis. The ASB initially decided to revise the standard in 2014. The newly revised ASOP is in effect for any actuarial work in connection with a financial audit, review, or examination for fiscal periods beginning on or after Dec. 15, 2016.

ASOP No. 23, Data Quality. The ASB originally adopted ASOP No. 23 in 1993 and revised it in 2004. In 2014, the ASB concluded that the ASOP needed to be further revised to keep pace with practice changes including, for example, increasing use of nontraditional data sources for predictive models and legislatively mandated data submissions. The revised ASOP, adopted in December 2016, will take effect for any actuarial work product for which data were provided to or developed by an actuary on or after April 30, 2017.

ASOP No. 24, Compliance with the NAIC Life Insurance Illustrations Model Regulation. The previous version of this ASOP was revised in 2007 to keep up with life insurance product innovation and regulation. The ASOP was further revised following the NAIC’s release in 2015 of Actuarial Guideline 49 (AG 49), which clarified certain requirements of the Life Insurance Illustrations Model Regulation related to policies with index-based interest credits. The revised ASOP, which reflects changes effected through AG 49 and clarifies certain guidance within the standard, takes effect on April 30, 2017.

As change continues to occur in actuarial practice, law, and the business environment, the ASB remains committed to keeping pace with those changes, and in creating and revising its ASOPs in response. The revision of the three existing ASOPs in 2016 vividly illustrates that commitment and how the ASB manages the inevitability of change for the better

1 Adlai Stevenson, presidential campaign address, Miami (September 1956).

2 Structural Framework of U.S. Actuarial Professionalism, p. 21.

(Featured in the February 2017 Actuarial Update.)