12.1 Actuarial standards of practice and codes of conduct

Actuarial standards of practice and codes of conduct form the backbone of professional integrity in the field. They provide essential guidance for actuaries, ensuring consistency and quality across different practice areas while maintaining public trust.

These guidelines cover a wide range of actuarial work, from life insurance to enterprise risk management. They establish ethical principles, address conflicts of interest, and outline consequences for non-compliance, helping actuaries navigate complex professional situations.

Actuarial standards of practice

• Actuarial standards of practice (ASOPs) provide guidance for actuaries in performing professional services and set the minimum level of practice expected
• ASOPs help ensure consistency, reliability, and quality in actuarial work across different practice areas (life insurance, health insurance, pensions, etc.)
• Following ASOPs is essential for actuaries to fulfill their professional responsibilities and maintain public trust in the actuarial profession

Purpose of standards

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• Establish a framework for appropriate actuarial practice and conduct
• Provide guidance to actuaries when performing professional services
• Define the minimum level of acceptable practice in various areas of actuarial work
• Promote consistency and quality in actuarial work products
• Enhance public confidence in the actuarial profession

Scope of standards

• ASOPs cover a wide range of actuarial practice areas including life insurance, health insurance, property and casualty insurance, pensions, and enterprise risk management
• Standards address various aspects of actuarial work such as data quality, assumptions, models, communication, and documentation
• ASOPs apply to actuaries providing professional services in the United States and may also be relevant for actuaries practicing internationally

Development process for standards

• ASOPs are developed by the Actuarial Standards Board (ASB), an independent body within the American Academy of Actuaries
• The ASB follows a rigorous process involving research, drafting, exposure, and revision before adopting new or revised standards
• Actuaries and other interested parties have opportunities to provide input and comment on proposed standards during the exposure period
• The ASB considers all comments received and makes appropriate revisions before adopting final standards

Compliance with standards

• Actuaries are expected to be familiar with and comply with all ASOPs relevant to their area of practice
• Failure to comply with applicable standards may result in disciplinary action by the profession's counseling and discipline bodies
• Actuaries should use professional judgment in applying the standards and may need to depart from the guidance in certain situations
  • Such departures should be clearly documented and justified
• Actuaries should stay current with updates and revisions to standards and adjust their practice accordingly

Actuarial codes of conduct

• Actuarial codes of conduct set forth the professional and ethical standards expected of actuaries in their relationships with clients, employers, the public, and the actuarial profession
• The primary actuarial organizations in the United States (American Academy of Actuaries, Society of Actuaries, Casualty Actuarial Society, etc.) have adopted similar codes of conduct for their members
• Compliance with codes of conduct is essential for actuaries to maintain their professional integrity and the public's trust in the actuarial profession

Purpose of codes

• Establish the ethical principles and standards of conduct expected of actuaries
• Provide guidance to actuaries in navigating ethical dilemmas and making professional decisions
• Promote the integrity, competence, and trustworthiness of the actuarial profession
• Enhance public confidence in the actuarial profession and its work products

Key principles in codes

• Integrity: Actuaries should act honestly, with integrity and competence, and in a manner that fulfills the profession's responsibility to the public
• Qualification: Actuaries should only perform work for which they are qualified and comply with applicable qualification standards
• Conflict of interest: Actuaries should avoid conflicts of interest and disclose any potential conflicts to all principals
• Confidentiality: Actuaries should protect the confidentiality of client information and not disclose it without consent

Compliance with codes

• Actuaries are expected to be familiar with and adhere to the applicable codes of conduct in their practice
• Actuaries should use professional judgment in applying the codes and seek guidance when facing ethical dilemmas
• Actuaries have a responsibility to report any violations of the codes by themselves or others to the appropriate counseling and discipline body

Consequences of non-compliance

• Actuaries who violate the codes of conduct may face disciplinary action by the profession's counseling and discipline bodies
  • Disciplinary actions can include reprimands, suspension, or expulsion from membership in actuarial organizations
• Non-compliance with codes of conduct can also result in legal liability, damage to professional reputation, and loss of public trust in the individual actuary and the profession as a whole

Professionalism in actuarial practice

• Professionalism is a core value of the actuarial profession and encompasses the ethical behavior, competence, and integrity expected of actuaries
• Actuaries have a responsibility to maintain high standards of professionalism in all aspects of their work, from technical analysis to communication with clients and the public
• Professionalism is essential for actuaries to fulfill their unique role in society and maintain the public's trust in the actuarial profession

Importance of professionalism

• Professionalism ensures that actuaries provide high-quality, reliable, and objective analysis and advice
• It helps actuaries navigate complex situations and make ethical decisions that balance the interests of various stakeholders
• Professionalism enhances the credibility and reputation of the actuarial profession and individual actuaries
• It is essential for maintaining the public's trust in actuaries as experts in assessing and managing financial risks

Ethical considerations for actuaries

• Actuaries must adhere to ethical principles such as integrity, objectivity, competence, and confidentiality in their work
• They should be honest and transparent in their communications and avoid misrepresenting or overstating their qualifications or the certainty of their results
• Actuaries must disclose any potential conflicts of interest and ensure that their professional judgment is not compromised by financial or other incentives

Public interest vs client interest

• Actuaries have a responsibility to consider the public interest in their work, not just the interests of their clients or employers
• In situations where the interests of the public and the client may conflict, actuaries should prioritize the public interest and provide objective, unbiased advice
• Actuaries should be prepared to challenge or refuse to act on client requests that would violate professional standards or ethical principles

Maintaining public trust

• Actuaries must continuously demonstrate their competence, integrity, and commitment to professional standards to maintain the public's trust
• They should stay current with developments in actuarial science and related fields and enhance their skills through continuing education and professional development
• Actuaries should participate in the profession's self-regulation efforts, such as the development of standards of practice and disciplinary processes, to uphold the integrity of the profession
• They should also engage in public outreach and education to promote understanding of the actuarial profession and its role in society

Applying standards and codes

• Actuaries must use professional judgment in interpreting and applying the standards of practice and codes of conduct to specific situations encountered in their work
• The standards and codes provide general principles and guidance, but may not address every possible scenario or nuance
• Actuaries should seek to understand the intent and spirit of the standards and codes, not just the letter, and apply them in a manner that promotes the best interests of their clients, the public, and the profession

Interpreting standards and codes

• Actuaries should carefully read and understand the relevant standards of practice and codes of conduct that apply to their area of work
• They should consider the specific context and circumstances of each situation and how the standards and codes apply
• Actuaries may need to consult with colleagues, supervisors, or professional organizations for guidance on interpreting and applying the standards and codes in complex or ambiguous situations

Resolving conflicts between standards and codes

• In some cases, actuaries may encounter situations where different standards of practice or codes of conduct appear to conflict or provide inconsistent guidance
• Actuaries should use professional judgment to carefully analyze the situation and determine the most appropriate course of action
• They should consider the fundamental principles underlying the standards and codes, such as protecting the public interest and maintaining the integrity of the profession, in resolving any conflicts

Seeking guidance on application

• When faced with complex or uncertain situations, actuaries should seek guidance from appropriate sources on how to apply the standards and codes
• This may include consulting with colleagues, supervisors, or professional organizations such as the American Academy of Actuaries or the Actuarial Standards Board
• Actuaries should document any guidance received and the rationale for their decisions in applying the standards and codes

Documenting compliance

• Actuaries should maintain clear and comprehensive documentation of their work, including the data, assumptions, methods, and results of their analyses
• They should also document their compliance with relevant standards of practice and codes of conduct, including any judgments made or deviations from the guidance
• Clear documentation helps demonstrate the actuary's professionalism and adherence to standards, and can provide a defense in case of any future questions or challenges to their work

Disciplinary processes

• The actuarial profession has established disciplinary processes to address violations of professional standards and codes of conduct by actuaries
• These processes are designed to protect the public interest, maintain the integrity of the profession, and ensure that actuaries are held accountable for their actions
• Disciplinary processes typically involve investigation of complaints, adjudication of violations, and imposition of appropriate sanctions

Reporting violations

• Actuaries have a professional obligation to report any known or suspected violations of standards of practice or codes of conduct by themselves or others
• Reports can be made to the Actuarial Board for Counseling and Discipline (ABCD), the disciplinary body of the U.S. actuarial profession
• The ABCD maintains confidentiality of the reporting process and protects the identity of the complainant to the extent possible

Investigation procedures

• Upon receiving a complaint, the ABCD conducts an initial review to determine whether there is sufficient evidence to warrant an investigation
• If an investigation is initiated, the ABCD appoints a team of investigators to gather and review relevant evidence, interview witnesses, and prepare a report of their findings
• The actuary under investigation is given an opportunity to respond to the allegations and present their case

Disciplinary actions

• If the ABCD determines that a violation of standards or codes has occurred, it may recommend disciplinary action to the appropriate actuarial organization (American Academy of Actuaries, Society of Actuaries, Casualty Actuarial Society, etc.)
• Disciplinary actions can range from private reprimands or censures to suspension or expulsion from membership in the actuarial organization
• In severe cases, the ABCD may also recommend that the actuary's credentials be revoked or that the matter be referred to state licensing boards or legal authorities

Appeals process

• Actuaries who are subject to disciplinary action have the right to appeal the decision through a formal process established by the actuarial organization
• The appeals process typically involves a review of the case by an independent panel of actuaries who were not involved in the original investigation or decision
• The panel may affirm, modify, or reverse the disciplinary action based on its review of the evidence and arguments presented by the actuary and the ABCD

Continuing education requirements

• Actuaries are required to complete continuing education (CE) activities to maintain and enhance their professional knowledge and skills
• CE requirements are established by the actuarial organizations and vary by credential and area of practice
• Compliance with CE requirements is a condition of maintaining membership in the actuarial organizations and the right to use actuarial credentials

Purpose of continuing education

• Ensures that actuaries stay current with developments in actuarial science, financial markets, regulatory environments, and other relevant areas
• Helps actuaries maintain and enhance their professional competence and provide high-quality services to their clients and the public
• Demonstrates the profession's commitment to lifelong learning and the maintenance of high professional standards

Qualifying activities for credit

• CE credit can be earned through a variety of activities, including attending conferences, seminars, or webinars; completing online courses or self-study programs; teaching or presenting at professional events; and writing articles or papers
• To qualify for CE credit, activities must be relevant to the actuary's area of practice and meet the standards established by the actuarial organizations
• Actuaries must maintain records of their CE activities and be prepared to provide documentation if requested by the actuarial organizations

Minimum credit requirements

• The minimum number of CE credits required varies by actuarial credential and organization
  • For example, Fellows of the Society of Actuaries (FSA) must complete 30 hours of CE each year, while Associates (ASA) must complete 20 hours
• Actuaries who hold multiple credentials or practice in multiple areas may be subject to additional CE requirements
• Failure to meet the minimum CE requirements can result in disciplinary action, including suspension or revocation of actuarial credentials

Reporting continuing education

• Actuaries must report their completed CE activities to the actuarial organizations on a regular basis, typically annually
• Reporting is usually done through an online system maintained by the actuarial organization
• Actuaries must provide accurate and complete information about their CE activities, including the date, location, sponsor, and content of each activity
• The actuarial organizations may audit a sample of actuaries each year to verify their compliance with CE requirements and the accuracy of their reporting