Professional judgment is core to an actuary’s work; it comes into play when determining whether an actuary is qualified to take on an assignment, which actuarial standards of practice (ASOPs) to use when performing an assignment, and how to interpret those ASOPs. But the ability to exercise sound professional judgment isn’t magically bestowed when an actuary earns their credential—it is developed over years of training and experience.
As ASOP No. 1, Introductory Actuarial Standard of Practice, 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, recognizing that reasonable differences may arise when actuaries project the effect of uncertain events.1
ASOPs are written in such a way that actuaries have great leeway to exercise professional judgment. There are very few instances where the actuary is absolutely required to take a certain action.
Professional judgment is not based solely on training and experience, though these play a vital role. The structure of the actuarial profession—the Code of Professional Conduct, U.S. Qualification Standards, and ASOPs—gives actuaries a framework within which to exercise actuarial judgment. This is important because, as ASOPs are principle-based, actuarial work relies heavily on professional judgment. As ASOP No. 1 notes:
ASOPs are not narrowly prescriptive and neither dictate a single approach nor mandate a particular outcome. Rather, ASOPs provide the actuary with an analytical framework for exercising professional judgment, and identify factors that the actuary typically should consider when rendering a particular type of actuarial service. The ASOPs allow for the actuary to use professional judgment when selecting methods and assumptions, conducting an analysis, and reaching a conclusion, and recognize that actuaries can reasonably reach different conclusions when faced with the same facts.2
The ASOPs are written in such a way that actuaries have great leeway to exercise professional judgment. There are very few instances where the actuary is absolutely required to take a certain action. Most guidance in the ASOPs is phrased either as “the actuary should” or “the actuary should consider.” Where the guidance is phrased as “the actuary should,” the Actuarial Standards Board believes that in the vast majority of cases the actuary will find that the guidance indeed sets out the best course of action. But even in such cases, the actuary is permitted to exercise professional judgment. ASOP No. 1 acknowledges that:
Situations may arise where the actuary applies professional judgment and concludes that complying with this practice would be inappropriate, given the nature and purpose of the assignment and the principal’s needs, or that under the circumstances it would not be reasonable or practical to follow the practice.3
In such situations, actuaries may deviate from the guidance but must disclose the deviation, their rationale for doing so, and the effect of the deviation—in essence, putting their professional judgment on display.
Often, the ASOPs call directly for an actuary to exercise professional judgment. For example, the documentation section that appears in most recently issued ASOPs includes the following sentence: “The degree of such documentation should be based on the professional judgment of the actuary and may vary with the complexity and purpose of the actuarial services.” Professional judgment also comes into play when determining whether something is material, significant, reasonable, or practical—all terms used frequently in the ASOPs.
Much, then, depends upon the professional judgment of actuaries. While the ASOPs point to specific situations where actuaries must use professional judgment, actuaries would do well to exercise their professional judgment within the framework of professionalism as a whole. In particular, Precept 1 of the Code is worth keeping in mind when exercising professional judgment—preferably with integrity, competence, skill, and care.
1. ASOP No. 1, section 2.9
2. Ibid, section 3.1.4.
3. Ibid, section 2.1.