precept 13 â€“ how do i comply in a self-regulating profession?

Copyright © 2012 by the American Academy of ActuariesAll Rights Reserved 1

Precept 13 – How Do I Comply In A Self-Regulating Profession?

Precept 13 – How Do I Comply In A Self-Regulating Profession?

Webcast – September 13, 2012

Sponsored by the Academy’s Council on Professionalism and co- sponsored by the ASPPA, CAS, CCA, and SOA


Presenters

Tracy Braun, MSPA, MAAA, EA, FCA, member of the Committee on Professional Responsibility

Lloyd M. Spencer, Jr., MAAA, CERA, FSA, member of the Committee on Professional Responsibility

Sheila J. Kalkunte, Esq., Academy Assistant General Counsel and Professionalism Liaison


Disclaimers

Please note that the statements and opinions expressed herein are solely those of the panelists and do not constitute official statements or positions of the Academy, any boards or committees of the Academy or any other organization to which the panelists are members.Please note the case hypothetical are only examples and are not intended to provide with specific guidance for your particular situation. You may contact the ABCD for that information.


An Overview of Precept 13

The Code, Discipline & Self-Regulating Professions

General Precept 13 Considerations

Issues Arising from the Practical Application of Precept 13

Hypothetical Case Studies

Questions

Agenda







Questions

Agenda


PRECEPT 13

An Actuary with knowledge of an apparent, unresolved, material violation of the Code [of Professional Conduct, or “the Code”] by another Actuary should consider discussing the situation with the other Actuary and attempt to resolve the apparent violation.

If such discussion is not attempted or is not successful, the Actuary shall disclose such violation to the appropriate counseling and discipline body of the profession, except where the disclosure would be contrary to Law or would divulge Confidential Information.

Precept 13 Overview


PRECEPT 13 Annotations

ANNOTATION 13-1. A violation of the Code is deemed to be material if it is important or affects the outcome of a situation, as opposed to a violation that is trivial, does not affect an outcome, or is one merely of form.

ANNOTATION 13-2. An Actuary is not expected to discuss an apparent, unresolved material violation of the Code with the other Actuary if either Actuary is prohibited by Law from doing so or is acting in an adversarial environment involving the other Actuary.

Precept 13 Overview







Questions

Agenda


Government-Regulated v. Self-Regulated ProfessionsSelf-Regulatory Litmus Test: Consistent Delivery of Competent & Ethical Services

Benefits of Professional Self-RegulationAutonomy – Exercise of Professional & Personal Self-Determination (within the bounds of the Litmus Test)Imposition of Rational Requirements, Restrictions & Expectations

Risks of Professional Self-RegulationUneven Application of Discipline Perceived as Unfair? Failure to Limit Unethical Behavior/Practice Invites a New RegulatorRecently, NAIC committees have been discussing adding regulationto subject actuaries to discipline and control by state.



Holding a Self-Regulated Profession to a High Ethical Standard – Key Components of any code of professional conduct

Training & Admission RequirementsContinuing EducationConductQualificationPractice

Professional Discipline – The Means for Enforcing the Tenets of Professional Self-Regulation on a Membership



Challenges Surrounding Observed Code Violations

“Should Consider” Discussion with the Questioned ActuaryTattling v. Whistle-Blowing v. Upholding Professional IntegrityTime CommitmentPerceived Damage to One’s Own Professional Reputation

Why is Reporting of Observed Code Violations Required?

Active Compliance Monitoring by Actuarial Organizations is ImpracticalViolations Often Not Obvious to those Outside the ProfessionAlignment of Public, Professional, and Personal Interests








Questions

Agenda


PRECEPT 13

An Actuary with knowledge of an apparent, unresolved, material violation of the Code [of Professional Conduct, or “the Code”] by another Actuary should consider discussing the situation with the other Actuary and attempt to resolve the apparent violation (emphasis added).

Precept 13 – General Considerations


“Apparent”

Clear, obvious, noticeable, or evident

“One can’t always judge a book by its cover”

Interpretation May Require Specialized Actuarial Knowledge or the use of Actuarial Judgment

Operating with Incomplete InformationYou do not need to be 100 percent sure of a violation it just needs to be apparent.

Precept 13 - General Considerations


“Material”

Precept 13, Annotation 13-1: A Code Violation is deemed material if it is “important or affects the outcome of a situation”

Review the Professionalism Discussion Paper on Materiality at http://actuary.org/discussion-papers



“Unresolved”

Attempting Resolution is Not Required

Violations Observed in Draft Work Product or Processes Under Development are Often Resolved through:

Self-Directed Research & Subsequent RevisionPeer ReviewReview of Preliminary Findings with Principal UserDiscussion(s) with a Questioning Actuary



Compliance with Code Precepts versus Deviation from an Actuarial Standards of Practice (“ASOP”)

Thirteen of Fourteen Code Precepts Address Self-Regulation of Personal Professional Conduct

Precept 13 Addresses Situations Involving the Professional Misconduct of Another



The Practical Application of Precept 13 – Familiarity with:the CodeRelevant ASOPsQualification Standards

Reliance on Common Sense

Communication and/or Reporting versus Investigation

Requesting Guidance from the Actuarial Board for Counseling & Discipline (“ABCD”)








Questions

Agenda


Addressing Apparent Violations

Goal: Resolution via Common Understanding

Relationship between the Involved ActuariesColleaguesSubordinate / ManagerAdversaries

Inquisitive v. Accusatory Style

Form of Communication

Issue: One-on-One Resolution of a Violation of the Code


One-on-One Discussions May Preserve Confidentiality while Achieving Resolution

Disclosure of a Violation is Not Required if doing so Divulges Confidential Information

Precept 9 Permits Disclosure of Confidential Information if Authorized by a Principal or Required by Law

Confidentiality May Be:Required by Law or a courtImposed by Contract or Agreement

Issue: Confidentiality


The Code Defines Law as “Statutes, regulations, judicial decisions and other statements having legally binding authority”

Law that Imposes Obligations on an Actuary that Conflict with the Code or ASOPs Takes Precedence

Disclosure of a Violation is Not Required if doing so would be Contrary to Law

ASOPs Permit Deviation from Specific Guidance to Comply with Law

Issue: Impact of Law


Precept 2, Annotation 2-1 & Precept 3, Annotation 3-1

Preamble to the Code

Precedence of Foreign Law or Rules That Differ or Conflict with the Code

Issue: Impact of Foreign Law or Professional Code


ASOP 41, Section 4 Addresses Disclosure Requirements Related to an Actuary’s Deviation from ASOP Guidance

A Failure to Properly Disclose Such Deviation may give rise to a Violation of the Code

Issue: Violations when Deviation from ASOPs is Permitted


Professional Judgment

Exercise of Professional Judgment

Reasonable Differences of Opinion

Presented such that it is recognizable when & where Professional Judgment has been applied

Does Not Require Conformity of Conclusions

Issue: Impact of Professional Judgment


Consider the Purpose of the Code

Consider Meanings within their Context of Use

Apply Common Sense

Reasonable Differences in Interpretation are to be Expected

Open Lines of Communication

Issue: Subjective Interpretations of Precept Language


Undisclosed Knowledge of a Precept 13 Violation

The Questioned Actuary & Lack of Disclosure

Forum For Disclosure

Issue: Application of Precept 13 to Precept 13 Situations


No Prescribed Timeframe

ABCD Complaint Process Rules of Procedure Outlined at http://www.abcdboard.org/complaints

Discuss Complaint with ABCD Prior to its Formal SubmissionSubmit Signed Description of Facts in Writing with any supporting materialsAlternative Procedure for Anonymous “Information Submission”

Issue: When Disclosure Should Be Made Under Precept 13







Questions

Agenda


You have recently been hired to direct the Actuarial and Valuation functions of a medium-sized P&C company; the incumbent director & Actuary, Mr. Doe, recently retired

Following a detailed review of the Company’s financial and valuation processes, you develop concerns regarding an outdated valuation approach used in the determination of Casualty Loss Reserves

Your back-of-the-envelope calculations suggest Loss Reserves may be materially understated

Hypothetical Case Study ACasualty Loss Reserving - Procedural Concerns


You contact Mr. Doe to discuss the situation. Mr. Doe’s recollection of the rationale supporting the current valuation approach is fuzzy at best.

When you press Mr. Doe for written documentation supporting the current valuation approach, he terminates the conversation, indicating that his obligation to provide actuarial support to the Company ended upon his retirement.

How Should You Proceed?

Hypothetical Case Study ACasualty Loss Reserving - Procedural Concerns


You recently assumed the actuarial duties for several small Defined Benefit pension plans from the prior consulting Actuary

Your review of these plans uncovers several small errors in the prior Actuary’s work, errors that were made consistently in each plan valuation

Individually, each error would be considered small & immaterial to the valuation of any single plan

Hypothetical Case Study BSmall-Plan Defined Benefit Market - Cumulative Errors


With the Principal’s Consent, the prior Actuary has a Precept 10, Annotation 10-5 Obligation to Cooperate and Provide You with Information

In These Discussions, the prior Actuary Admits the Error and Assures You it will not be Repeated

How Should You Proceed?

Hypothetical Case Study BSmall-Plan Defined Benefit Market - Cumulative Errors


You have prepared financial income statement projections for your company’s new life insurance product, based on the pricing file prepared by your company’s product development Actuary

While reviewing your projections with the Chief Financial Officer and the product development Actuary, you both learn that the pattern of losses followed by gains illustrated in your projections will not be favorably received by the company’s Board of Directors

Hypothetical Case Study CProduct Development Projection


The product development Actuary revises the product’s pricing assumptions to produce a more reasonable earnings pattern

You discuss the updates with the product development Actuary and express your concern that the revised assumptions underlying the updated pricing file deviate from specific guidance provided in applicable ASOPs

The product development Actuary disagrees with your assessment, noting that all deviations have been disclosed

How should you proceed?

Hypothetical Case Study CProduct Development Projection


You have a strong disagreement with another Actuary regarding the application of a particular Law

There is no general consensus or common interpretation within the Actuarial profession on the matter because the Law is relatively new and lacks regulatory guidance


Hypothetical Case Study DA Strong Disagreement


An Actuarial colleague within your consulting firm is on vacation. A client calls with questions regarding a report your colleague recently provided the client. During your review of the work, it becomes apparent that your colleague violated the firm’s procedures and the Code.

You follow your firm’s internal process for handling such matters and report the situation. Two months later, you revisit the situation and discover that an internal review process is still under way, and that no new report has been prepared for the client.


Hypothetical Case Study EInternal Reporting


QUESTIONS?

precept 13 â€“ how do i comply in a self-regulating profession?

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