Actuarial Standard of Practice No. 41
Actuarial Communications
STANDARD OF PRACTICE
TRANSMITTAL MEMORANDUM
December 2009
TO: Members of Actuarial Organizations Governed by the Standards of Practice of the Actuarial Standards Board and Other Persons Interested in Actuarial Communications
FROM: Actuarial Standards Board (ASB)
SUBJ: Actuarial Standard of Practice (ASOP) No. 41
This document is a second exposure draft of a proposed revision of ASOP No. 41, Actuarial Communications.
Please review this second exposure draft and give the ASB the benefit of your comments and suggestions. 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.
The ASB accepts comments by either electronic or conventional mail. The preferred form is e-mail, as it eases the task of grouping comments by section. However, please feel free to use either form. If you wish to use e-mail, please send a message to comments@actuary.org. You may include your comments either in the body of the message or as an attachment prepared in any commonly used word processing format. Please do not password protect any attachments. Include the phrase “ASB COMMENTS” in the subject line of your message. Please note: Any message not containing this exact phrase in the subject line will be deleted by our system’s spam filter.
If you wish to use conventional mail, please send comments to the following address:
ASOP No. 41 Revision
Actuarial Standards Board
1850 M Street, Suite 300
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: March 31, 2010
Background
The current version of ASOP No. 41 has been in effect for seven years, and applies to all U.S. actuaries in all areas of practice. During that time, the ASB has received comments regarding a lack of clarity in the document and confusion in respect to its wording and structural arrangement. One of the ASB’s priorities is to make sure that all ASOPs are clear and unambiguous.
In September 2008 the ASB approved the first exposure draft of a revised ASOP No. 41. Twenty-three comment letters were received. Most had multiple comments, many were substantive. The majority of commentators were supportive of the effort to revise this ASOP, and most comments were positive in nature, but some indicated that the first draft had some serious deficiencies. The ASB’s General Committee gave serious consideration to each comment. The result of their efforts combined with further ASB review is this second exposure draft. Because of the extent of the revisions and some key changes in direction from the prior draft, the ASB has decided to re-expose this draft for review and comment by members of the profession and other interested parties.
Key Changes
Most of the key changes identified in the first draft remain, including specifically the coordination of the proposed revisions to this draft with its efforts to standardize the treatment of deviation among all ASOPs. Accordingly, the ASB has restructured section 4 as follows:
1. all required disclosure is listed in section 4; and
2. the treatment of deviations from the guidance of any ASOP (including situations where assumptions are not set by the actuary) is codified in this section 4.
Other significant changes from the existing ASOP No. 41 that remain from the first draft are as follows:
3. Reference to Prescribed Statements of Actuarial Opinion (PSAOs) has been removed.
4. Section 3 has been reorganized. Disclosure requirements have been moved to section 4 while additional guidance relating to disclosures remains in section 3.3.
5. Section 3.3.4 makes it clear that the actuary is responsible for all actuarial assumptions and methods utilized in producing the actuarial communication, unless the actuary discloses otherwise.
Comments received on the first exposure draft convinced the reviewers that two substantive changes in perspective were necessary to accommodate changes in technology and in the way actuarial services are, and will be, delivered. Changes since the first exposure draft are as follows:
6. The first change is to drop the concept of a single formal actuarial report, which is required to contain all necessary disclosures. Instead we have adopted the concept that communication is an ongoing and interactive process and that an actuarial report with all necessary disclosure elements may comprise several different pieces of communication, perhaps delivered in different forms. This approach within the standard does create the obligation for the actuary to identify all of the related documents that compose the report. The actuary should take reasonable steps to ensure that each intended user has access to all elements of the applicable report.
7. A second substantive change is in the subsection on documentation. After much discussion and deliberation the ASB decided that specifying what material should be retained and for how long is not appropriate for this standard. Accordingly, this subsection has been substantially shortened.
Other changes have been made in response to specific suggestions by commentators.
For additional clarity the following features of the requirements of this proposed revision are highlighted:
8. The language of the scope section, coupled with the definition of an actuarial communication, is intended to convey that this standard applies to communications made by an actuary if, and only if, the actuary is communicating an actuarial finding to an intended user. If a communication does not include the result of professional services acting in the capacity of an actuary then it is not considered an actuarial communication for the purposes of this standard.
9. The interrelationship of the definitions of sections 2.1, 2.2, and 2.8 are to be interpreted such that the universe of actuarial communications may be divided into the two mutually exclusive subsets of a) actuarial documents, and b) oral communications.
10. Section 4.1.2 requires that every actuarial document be uniquely identified.
Request for Comments
The ASB is issuing this revised version of ASOP No. 41 as a second exposure draft to provide members of actuarial organizations governed by the ASOPs and other interested parties an opportunity to comment. While all comments will be considered, the committee is particularly interested in the following questions:
1. Is the revised concept of an actuarial report reflected in this draft both clear and appropriate?
2. Is the revised ASB position on documentation appropriate?
3. Does this revised draft incorporate an appropriate emphasis on the need for the actuary to consider the needs of the intended users?
The ASB reviewed this draft at the December 2009 meeting and approved its exposure.
General Committee of the ASB
Thomas K. Custis, Chairperson
Michael S. Abroe Eric P. Lofgren
Charles A. Bryan William J. Schreiner
Peter Hendee Chester J. Szczepanski
Actuarial Standards Board
Stephen G. Kellison, Chairperson
Albert J. Beer Robert G. Meilander
Alan D. Ford James J. Murphy
Patrick J. Grannan Godfrey Perrott
David R. Kass Lawrence J. Sher
The ASB establishes and improves standards of actuarial practice. These ASOPs identify what the actuary should consider, document, and disclose when performing an actuarial assignment. The ASB’s goal is to set standards for appropriate practice for the U.S.
Section 1. Purpose, Scope, Cross References, and Effective Date
1.1 Purpose
This actuarial standard of practice (ASOP) provides guidance to actuaries with respect to actuarial communications.
1.2 Scope
This standard applies to actuaries issuing actuarial communications within any practice area. This standard does not apply to communications that do not include an actuarial opinion or other actuarial findings (for example, this standard does not apply to brochures, fee quotes, or invoices).
This standard establishes minimum requirements for organizing and completing actuarial communications, including those that may be required by the Qualification Standards or by other ASOPs. If such other guidance contains communication requirements that are additional to or inconsistent with this standard, the requirements of such other guidance supersede the requirements of this ASOP. However, any disclosures or additional communication requirements imposed by this standard, which are not inconsistent with such other guidance, should be included in the actuarial communication.
Law, regulation, or another profession’s standards may prescribe the form and content of a particular actuarial communication (such as a government form). In such situations, the actuary should comply with the guidance in this standard to the extent not prohibited by applicable law, regulation, or standard.
If the actuary departs from the guidance set forth in this standard in order to comply with applicable law (statutes, regulations, and other legally binding authority), or for any other reason, the actuary should refer to section 4 regarding deviation.
1.3 Cross References
When this standard refers to the provisions of other documents, the reference includes the referenced documents as they may be amended or restated in the future, and any successor to them, by whatever name called. If any amended or restated document differs materially from the originally referenced document, the actuary should consider the guidance in this standard to the extent it is applicable and appropriate.
1.4 Effective Date
This standard will be effective for any actuarial communication dated three months after approval of this document.
Section 2. Definitions
The terms below are defined for use in this actuarial standard of practice.
2.1 Actuarial Communication
A written, electronic, or oral communication issued by an actuary with respect to actuarial services.
2.2 Actuarial Document
An actuarial communication in any recorded form (such as paper, e-mail, spreadsheets, presentations, audio or video recordings, web sites, and court or hearing transcripts). Notes taken by someone other than the actuary are not considered actuarial documents.
2.3 Actuarial Finding
The result of a professional service provided by an individual acting in the capacity of an actuary in performing that service (including commentary on another actuary’s work). Such services include, but are not limited to, providing advice, conclusions, statements of actuarial opinion, other opinions, or recommendations, based upon actuarial considerations.
2.4 Actuarial Report
The set of actuarial documents that the actuary identifies as relevant to specific actuarial findings that is available to an intended user.
2.5 Deviation
The process by which an actuary departs from the guidance of an ASOP while still complying with the ASOP through appropriate disclosure.
2.6 Intended Audience
All intended users.
2.7 Intended User
Any person who the actuary intends to be able to rely on the actuarial findings.
2.8 Oral Communication
An actuarial communication made orally that has not, to the knowledge of the actuary, been recorded or transcribed verbatim. An oral communication is an actuarial communication but is not an actuarial document.
2.9 Other User
Any user of an actuarial communication who is not a member of the intended audience.
Section 3. Analysis of Issues and Recommended Practices
3.1 Requirements for Actuarial Communications
The performance of a specific actuarial engagement or assignment typically requires significant and ongoing communications between the actuary and the principal regarding the following: the scope of the requested work; the methods, procedures, assumptions, and data, and other information required to complete the work; and the development of the communication of the actuarial findings. Some requirements of this standard apply to each actuarial communication; others apply to the actuarial report.
3.1.1 Form and Content
The actuary should take appropriate steps to ensure that the form and content of each actuarial communication is appropriate to the particular circumstances, taking into account the intended audience.
3.1.2 Clarity
The actuary should take appropriate steps to ensure that each actuarial communication is clear and uses language appropriate to the particular circumstances, taking into account the intended audience.
3.1.3 Timing of Communication
The actuary should issue each actuarial communication without undue delay, unless other arrangements, mutually satisfactory to the principal and actuary, have been made. In any event, the timing of the communication should consider the needs of the intended audience.
3.1.4 Identification of Responsible Actuary
The actuary issuing an actuarial communication should ensure that the actuarial communication clearly identifies the actuary responsible for it. When two or more individuals jointly issue a communication (at least some of which is actuarial in nature), the communication should identify all responsible actuaries. The name of an organization with which each actuary is affiliated also may be included in the communication, but the actuary’s responsibilities are not affected by such identification. Unless the actuary judges it inappropriate, the actuary issuing an actuarial communication should also indicate the extent to which the actuary is available to provide supplementary information and explanation.
3.2 Actuarial Report
When the actuary intends the findings in an actuarial document to be relied upon by the intended user, then the actuary should complete an actuarial report within a reasonable time period agreed to by the actuary and the principal. An actuarial report may comprise one or several documents. The report may be in several different formats (such as formal documents produced on word processing, presentation or publishing software, e-mail, paper, or web sites). The report for a specific intended user is the set of all documents available to that user, and may differ from the report for a different intended user (for example because one user joined a project team at a different time from other users). Even the least comprehensive version of an actuarial report is subject to this standard. Where an actuarial report comprises multiple documents, the actuary should communicate to the intended user which documents comprise the report.
In the actuarial report, the actuary should state the actuarial findings, and identify the methods, procedures, assumptions, and data used by the actuary with sufficient clarity that another actuary qualified in the same practice area could make an objective appraisal of the reasonableness of the actuary’s work as presented in the actuarial report.
The actuary should consider the needs of the intended user in communicating the actuarial findings in the actuarial report. The actuary should make a reasonable effort to ensure that the intended user has access to all documents of the actuarial report.
3.3 Disclosures Within an Actuarial Report
Consideration of the items to be disclosed is an important part of the preparation of any actuarial communication. The actuary should review the list of required disclosure items included in section 4 of this ASOP, and in any other relevant ASOP. Further discussion regarding some of these disclosure items follows:
3.3.1 Uncertainty or Risk
The actuary should consider what cautions regarding possible uncertainty or risk in any results should be included in the actuarial report.
3.3.2 Conflict of Interest
An actuary who is not financially, organizationally, or otherwise independent concerning any matter related to the subject of an actuarial communication should disclose in the actuarial communication any pertinent information that is not apparent. This includes any situation where the actuary acts, or may appear to be acting, as an advocate. However, applicable financial disclosure is limited in accordance with Precept 6 of the Code of Professional Conduct to sources of material compensation that are known to, or are reasonably ascertainable by, the actuary.
3.3.3 Reliance on Other Sources for Data and Other Information
An actuary who makes an actuarial communication assumes responsibility for it except to the extent the actuary disclaims responsibility by stating reliance on other sources. Reliance on other sources for data and other information means making use of those sources without assuming responsibility for them. An actuarial communication making use of any such reliance should define the extent of reliance, for example by stating whether or not checks as to reasonableness have been applied. An actuary may rely upon other sources for information except where limited or prohibited by applicable standards of practice or law or regulation. Further guidance on when such reliance is appropriate, and what the actuary’s responsibilities are when such reliance is stated, is found in ASOP No.23, Data Quality.
3.3.4 Responsibility for Assumptions and Methods
An intended user of an actuarial communication will generally expect that the assumptions and methods employed in preparing the actuarial findings within an actuarial communication were endorsed by the actuary. The actuary should disclose where this is not the case. The appropriate disclosure depends upon how the assumption or method was selected.
a. If the assumption or method is specified by applicable law (statutes, regulations, and other legally binding authority), the actuary should include the disclosures identified in section 4.2. These disclosures should be made whether or not the actuary believes the assumption or method is reasonable for the purpose of the communication.
b. If a material assumption or method is selected by another party the actuary has three choices:
1. If the assumption or method does not conflict significantly with what, in the actuary’s professional judgment, would be reasonable for the purpose of the assignment, the actuary has no disclosure obligation;
2. If the assumption or method significantly conflicts with what, in the actuary’s professional judgment, would be reasonable for the purpose of the assignment, the actuary must disclose that fact and the additional information specified in section 4.3; and
3. If the actuary has been unable to judge the reasonableness of the assumption or method without performing a substantial amount of additional work beyond the scope of the assignment, the actuary should disclose that fact as specified in section 4.3.
c. In all other situations, the actuary is responsible for all assumptions and methods utilized in the preparation of a communication unless the actuary prominently discloses otherwise within the communication by including the disclosures identified in section 4.4.
3.3.5 Information Date of Report
The actuary should communicate to the intended user the date through which data or other information has been considered in developing the findings included in the report.
3.3.6 Subsequent Events
The actuary should disclose any event:
a. that is discovered by the actuary after the information date described in 3.3.5;
b. that is discovered by the actuary before the report is issued; and
c. that may have a material effect on the actuarial findings if it were reflected in the actuarial findings.
If the actuary learns of changes to data or other information (on or before the information date) after some findings have been communicated, but before the report is completed, the actuary should communicate those changes, and their implications, to any intended user to whom the actuary has communicated findings.
3.3.7 Jurisdictional Issues
If an actuary is performing a professional service outside of a jurisdiction where the actuary is credentialed, the actuary should disclose that fact and any actuarial organization to which the actuary belongs.
3.4 Reconciliation of Material Differences
If a later actuarial communication produced by the same actuary for the same assignment includes materially different results or expresses a different opinion from the former communication, the actuary should reconcile the differences. The later communication should make it clear that the earlier results or opinion are no longer valid and why they have changed. If the later communication is oral, the actuary should follow-up with a document that clarifies the reason for the changes.
3.5 Restrictions of Specific Circumstances
An actuary’s communication may be constrained by the circumstances. Some examples include presenting testimony, dealing with transcripts (whether of testimony or otherwise), and transactions under time pressure. The actuary should follow the guidance of this standard to the extent reasonably possible within such constraints. An actuary so doing is not deviating from this guidance.
3.6 Oral Communications
When the actuary is providing an oral communication, the actuary should consider the extent to which (if any) the disclosures listed under section 3.3 should be included in the oral communication and include each such disclosure if appropriate in the particular circumstances. Where the actuary has a concern that the oral communication may be passed on to other parties, the actuary should consider following up with an actuarial document.
3.7 Responsibility to Other Users
An actuarial document may be used in a way that may influence persons who are not part of the intended audience. The actuary should recognize the risks of misquotation, misinterpretation, or other misuse of such a document and should take reasonable steps to ensure that the actuarial document is clear and presented fairly. To help prevent misuse, the actuary may include language in the actuarial document that may limit its distribution to other users (for example, by stating that it may only be provided to such parties in its entirety or only with the actuary’s consent).
Nothing in this standard creates an obligation for the actuary to communicate with any person other than the intended audience.
3.8 Documentation
An actuary may choose to keep file material other than that which should be disclosed under section 3.3. Nothing in this ASOP requires the actuary to disclose any such documentation to any other party.
Section 4. Communications and Disclosures
4.1 Disclosures in any Actuarial Communication
Disclosures in any actuarial communication should include the following:
4.1.1 Identification of Responsible Actuary
Any actuarial communication should identify the actuary who is responsible for the actuarial communication (see section 3.1.4).
4.1.2 Identification of Actuarial Documents
Any actuarial document should include the date and subject of the document with any additional modifier (such as “version 2” or time of day) to make this entire description unique.
4.1.3 Disclosures in Actuarial Reports
Any actuarial report should disclose the following information unless it is inappropriate to do so:
a. the principal(s) for whom the actuarial findings are made;
b. the intended audience for the actuarial report;
c. the scope and intended purpose of the engagement or assignment;
d. the acknowledgement of qualification as specified in the Qualification Standards;
e. any cautions about risk and uncertainty (see section 3.3.1);
f. any limitations or constraints on the use or applicability of the actuarial findings contained within the actuarial communication including, if appropriate, a statement that the communication should not be relied upon for any other purpose;
g. any conflict of interest as described in section 3.3.2;
h. any information that has a material impact on the actuarial findings on which the actuary relied and for which the actuary does not assume responsibility (see section 3.3.3);
i. the information date as described in section 3.3.5;
j. subsequent event(s) (if any) as described in section 3.3.6; and
k. the jurisdictional disclosure as described in section 3.3.7 (if it applies).
Note that other ASOPs that apply to a particular assignment may have additional disclosure requirements that should also be followed.
4.2 Certain Assumptions or Methods Prescribed by Law
Where any material assumption or method was prescribed by applicable law (statutes, regulations, and other legally binding authority), the actuary should disclose the following in the actuarial report:
a. the applicable law under which the report was prepared;
b. the assumptions or methods that are prescribed by the applicable law; and
c. that the report was prepared in accordance with the applicable law.
If the actuarial report is in a prescribed form that does not accommodate these disclosures, the actuary should make these disclosures in a separate communication (such as a cover letter) to the principal requesting that both communications be disseminated together where practicable.
4.3 Responsibility for Assumptions and Methods
In any situation not covered under section 4.2, where the actuary states reliance on other sources (as described in section 3.3.4.b.2 and 3) and thereby disclaims responsibility for any material assumption or method, the actuary should disclose the following in the actuarial report:
a. the assumption or method that was set by another party;
b. the party who set the assumption or method;
c. the reason that this party, rather than the actuary, has set the assumption or method; and
d. either
1. that the assumption or method significantly conflicts with what, in the actuary’s professional judgment, would be reasonable for the purpose of the assignment; or
2. that the actuary was unable to judge the reasonableness of the assumption or method without performing a substantial amount of additional work beyond the scope of the assignment, and did not do so.
If the actuarial report is in a prescribed form that does not accommodate these disclosures, the actuary should make these disclosures in a separate communication (such as a cover letter) to the principal, requesting that both communications be disseminated together where practicable.
4.4 Deviation From the Guidance of an ASOP
If, in the actuary’s professional judgment, the actuary has deviated materially from the guidance set forth in an applicable ASOP, other than as covered under sections 4.2 or 4.3 of this standard, the actuary can still comply with that ASOP by providing an appropriate statement in the actuarial communication with respect to the nature, rationale, and effect of such deviation.
Appendix 1 – Background and Current Practices
Note: This appendix is provided for informational purposes, but is not part of the standard of practice.
Background
The current version of ASOP No. 41, adopted in March 2002, was adapted from and superseded Interpretative Opinion No. 3, Professional Communications of Actuaries. Interpretive Opinion No. 3 was itself adopted by the American Academy of Actuaries in 1981. The 2002 version of ASOP No. 41 conformed to the format adopted by the Actuarial Standards Board in May 1996 for all actuarial standards of practice, and while this standard generally followed Interpretative Opinion No. 3, it also expanded upon, clarified, and eliminated portions of that opinion. Additionally, this standard offered guidance to complement the requirements imposed by the Code of Professional Conduct. It was drafted and is still intended to help actuaries apply the Code of Professional Conduct when making professional communications (by written, electronic, or oral means) to clients, employers, regulators, policyholders, pension plan participants, investors, and other users of actuarial services.
This revision has used definitions that are consistent with those found in the Code of Professional Conduct and in the recently revised Qualification Standards for Actuaries Issuing Statements of Actuarial Opinions. This revision also incorporates language in section 4 that is the foundation of the ASB’s new approach to creating consistency in the treatment of deviation language within all ASOPs.
It should be noted that all recorded forms of communication (including—but not limited to— paper, e-mail, spreadsheets, presentations, audio or video recordings, web sites, and court or hearing transcripts) could be considered records of such communications and may be, therefore, discoverable in legal proceedings.
Current Practices
Actuaries are currently guided by the Code of Professional Conduct, by ASOP No. 41, and by other actuarial standards of practice, depending on the nature of the work at hand.
Actuarial communications may be made available to a variety of users of actuarial work products including clients, employers, regulators, shareholders, and policyholders, as well as external audiences such as the general public. Actuarial communications may be delivered in many forms, including written, electronic, or oral; and may stand alone or be part of a broader pattern of communication. While preparing an actuarial communication an actuary should be mindful of the needs and concerns of each member of the intended audience.
Appendix 2 – Comments on the Exposure Draft and Responses
The first exposure draft of this ASOP, Actuarial Communications, was issued in September 2008 with a comment deadline of December 31, 2008. Twenty-three comment letters were received, some of which were submitted on behalf of multiple commentators, such as by firms or committees. For purposes of this appendix, the term “commentator” may refer to more than one person associated with a particular comment letter. The General Committee carefully considered all comments received, reviewed the exposure draft and proposed changes.
Click here to view Appendix 2 in its entirety.
PDF Version: Download Here
Last Revised: December 2009
Document Status: Past Exposure Draft