The Actuarial Standards Board (ASB) recently released a fourth exposure draft of a proposed new actuarial standard of practice (ASOP) titled Modeling. The proposed ASOP will provide guidance to actuaries in any practice area when performing actuarial services with respect to designing, developing, selecting, modifying, or using all types of models.
Changes made from the third exposure draft, released in June 2016, include clearer accommodation of other forms of modeling (such as predictive and statistical modeling) different from those of financial projection modeling; a revision of section 1.2., Scope, to remove the concept of “simple models”; and inclusion of new section 3.4, Reliance on Experts. In addition, the section Presentation of Results was deleted.
“Modeling is so fundamental to so many different kinds of actuarial work, having a standard with the right scope and correct guidance is incredibly important,” said Dale Hagstrom, chairperson of the ASB’s Modeling Task Force. “Over the past 11 years, many members of task forces and committees have helped develop the guidance proposed in the exposure draft, as it expanded from a discussion draft for modeling life insurance financial projections. We welcome all comments—either confirmatory agreement or suggestions for improvement.”
Four exposure drafts is a significant and unusual number. It demonstrates the ASB’s continuing commitment to considering public input on ASOPs and also the particular requirements of a standard like this that would apply to all practice areas. As background, the ASB is charged with exposing, promulgating or adopting, and publishing ASOPs in all areas of actuarial practice. Each proposed ASOP is subject to multiple levels of review and comment, and comments are welcomed on every exposure draft. A diagram of the typical drafting and exposure process is available on the ASB website.
The ASB’s exposure process is robust and transparent. Members of the profession are encouraged to comment on drafts, of course, but the comment process is also open to interested parties and the general public to ensure that anyone potentially affected by a standard can provide input. All comments received (anonymous comments are not accepted) are posted publicly on the ASB website so that all may see and understand the input that the ASB is receiving from the profession and the public. During its third exposure, the Modeling draft received 28 comment letters reflecting over 150 comments submitted. The first and second exposures received 48 and 37 comment letters, respectively.
The task force summarizes the issue raised in each significant comment and provides a response in an appendix that is published with the next version of the standard, whether a draft or a final ASOP. This highly detailed and exhaustive review of comments contributes to the transparency and integrity of the drafting and exposure process, as the appendix allows everyone—whether members of the public or the profession—to see each substantive comment and how the task force responded to it. In addition, the appendix allows everyone who took the time to comment to know that their comments have been seriously considered. In many cases, and clearly in this one, more than one exposure is required. Comments made during an exposure period often result in changes to a draft that require further exposure. The comments received on this draft will determine whether a record-breaking fifth exposure draft is required!
The input gained through the exposure process is invaluable to the ASB, ensuring that the final ASOP not only provides guidance for appropriate practice but also serves both the profession and the public. We encourage you to review the Modeling draft and submit your comments, as directed in the transmittal memo, by May 15, 2019.
Information on how to submit comments can be found in the exposure draft.