ethics and professionalism: a consulting actuary’s perspective mary frances miller case meeting...

Ethics and Professionalism: Ethics and Professionalism: A Consulting Actuary’s A Consulting Actuary’s

PerspectivePerspective

Mary Frances MillerMary Frances Miller

CASE Meeting 4/1/03CASE Meeting 4/1/03

TopicsTopics

QualificationQualification JudgmentJudgment Peer ReviewPeer Review DocumentationDocumentation

QualificationQualification

What are my responsibilities?What are my responsibilities?

PRECEPT 2. PRECEPT 2. An Actuary shall perform An Actuary shall perform Actuarial Services only when the Actuarial Services only when the Actuary is qualified to do so on the Actuary is qualified to do so on the basis of basic and continuing basis of basic and continuing education and experience and only education and experience and only when the Actuary satisfies applicable when the Actuary satisfies applicable qualification standards.qualification standards.

QualificationQualification

How do I decide if I’m qualified?How do I decide if I’m qualified? Do I have enough education?Do I have enough education?

ExamsExams Other sourcesOther sources

Do I have enough experience?Do I have enough experience? Same assignmentSame assignment Similar assignmentSimilar assignment

Is my continuing ed sufficient?Is my continuing ed sufficient? Am I up to date on current practice?Am I up to date on current practice? Is my recent continuing ed applicable to Is my recent continuing ed applicable to

this?this?

My qualificationsMy qualifications

EducationEducation 10 CAS exams (1988 syllabus)10 CAS exams (1988 syllabus) CPCU / ARe CPCU / ARe

ExperienceExperience Personal Lines ratemaking – 1984-91Personal Lines ratemaking – 1984-91 Reinsurance ratemaking & reserving 1992-93Reinsurance ratemaking & reserving 1992-93 Risk retention consulting 1993-2003Risk retention consulting 1993-2003

Continuing EdContinuing Ed General ratemaking and reserving up to dateGeneral ratemaking and reserving up to date SoA Group Health Exam 8 – read partial syllabusSoA Group Health Exam 8 – read partial syllabus

AAA Specific Qual Std for NAIC opinionsAAA Specific Qual Std for NAIC opinions

What am I qualified to do?What am I qualified to do?

Slam dunk: the stuff I do every daySlam dunk: the stuff I do every day Reserves and forecasts for risk retainersReserves and forecasts for risk retainers

WC / GL / AL / HPL / E&O / Prop / EPL / WC / GL / AL / HPL / E&O / Prop / EPL / PollutionPollution

Reserve opinions for single parent and Reserve opinions for single parent and group captives, risk retention groups, group captives, risk retention groups, self-insured workers compensation self-insured workers compensation reserves, risk poolsreserves, risk pools

Ratemaking for risk pools & rrg’sRatemaking for risk pools & rrg’s Forecast allocationsForecast allocations


A little stretch: things I do less oftenA little stretch: things I do less often Doctors’ MPLDoctors’ MPL Self-insured health reservesSelf-insured health reserves Insurance company reservesInsurance company reserves

Large commercialLarge commercial ““Standard” coveragesStandard” coverages

Cash flow studies (not really DFA)Cash flow studies (not really DFA)


A bigger stretch: things I can do with A bigger stretch: things I can do with some additional preparationsome additional preparation Captive feasibility studiesCaptive feasibility studies

Do I know enough about venues & taxes?Do I know enough about venues & taxes? Are my accounting skills sufficient?Are my accounting skills sufficient? Can I get adequate peer review?Can I get adequate peer review?

Self-insured individual long term disabilitySelf-insured individual long term disability Am I making the right assumptions?Am I making the right assumptions? Am I applying appropriate techniques?Am I applying appropriate techniques?

““Simple” DFASimple” DFA

What am I NOT qualified for?What am I NOT qualified for?

Health insurance ratemakingHealth insurance ratemaking Assessment spiralAssessment spiral

Personal lines ratemakingPersonal lines ratemaking Although I would be comfortable with a Although I would be comfortable with a

peer review rolepeer review role Commercial lines ratemaking – most Commercial lines ratemaking – most

lineslines Other benefits workOther benefits work Complicated DFAComplicated DFA

Actuarial JudgmentActuarial Judgment

PRECEPT 1. PRECEPT 1. An Actuary shall act An Actuary shall act honestly, with integrity and honestly, with integrity and competence, and in a manner to competence, and in a manner to fulfill the profession's fulfill the profession's responsibility to the public and responsibility to the public and to uphold the reputation of the to uphold the reputation of the actuarial profession.actuarial profession.


3.5.2 Changing Conditions—The actuary should consider the likely effect of changing conditions on the subject loss and loss adjustment expense reserves. The actuary should consider whether there have been significant changes in conditions particularly with regard to claims, losses, or exposures that are new or unusual and that are likely to be insufficiently reflected in the experience data or in the assumptions used to estimate loss and loss adjustment expense reserves. . .


. . . . . . The actuary should obtain information from the entity regarding the significant changes in the practices or philosophy used by the entity’s claims personnel and ascertain whether such changes are likely to have a material effect on the results of the actuary’s reserve analysis or on the risks and uncertainties associated with the reserves.


The latest diagonal in the incurred The latest diagonal in the incurred triangle is up; No apparent changes in triangle is up; No apparent changes in the payment patternthe payment pattern

Reserve strengthening or deterioration?Reserve strengthening or deterioration? What are the consequences of my What are the consequences of my

assumption if I’m wrong?assumption if I’m wrong? How can I frame my questions so that How can I frame my questions so that

the client doesn’t know the “right” the client doesn’t know the “right” answer?answer?


Incurred diagonal is down; payment Incurred diagonal is down; payment pattern is unchangedpattern is unchanged

Reserve weakening or improved Reserve weakening or improved experience?experience? What are the consequences if I’m What are the consequences if I’m

wrong?wrong? How many additional tests should I do?How many additional tests should I do? How should I document my judgment?How should I document my judgment?

Peer ReviewPeer Review

Pre-Project PlanningPre-Project Planning Do I understand the problem?Do I understand the problem? Have I made the right assumptions?Have I made the right assumptions? Am I using the best methodology?Am I using the best methodology? What other things should I consider?What other things should I consider?

Talk through the project with a Talk through the project with a knowledgeable colleagueknowledgeable colleague

At SAS, we include this step for At SAS, we include this step for essentially all projects that are not essentially all projects that are not routineroutine


Calculation ReviewCalculation Review We all make mistakesWe all make mistakes Good spreadsheet design and consistency Good spreadsheet design and consistency

in presentation of exhibits eliminate many in presentation of exhibits eliminate many mistakesmistakes

But may cause me to be lazy in my But may cause me to be lazy in my judgments!judgments!

Can be conducted by an analystCan be conducted by an analyst Does every calculation need to be Does every calculation need to be

checked?checked?


Methodology ReviewMethodology Review Do my assumptions make sense?Do my assumptions make sense? Did I use the right techniques?Did I use the right techniques? Do my conclusions follow from the data and Do my conclusions follow from the data and

calculations?calculations? Will my conclusions make sense to the Will my conclusions make sense to the

client?client? At SAS, this is a required step, At SAS, this is a required step,

conducted pre-release by a credentialed conducted pre-release by a credentialed actuaryactuary

Control Cycle: The next time aroundControl Cycle: The next time around

How accurate was my last projection?How accurate was my last projection? Was I consistently off?Was I consistently off?

Prior assumptions were incorrectPrior assumptions were incorrect Or does the variation appear random?Or does the variation appear random?

Stuff happensStuff happens Do my changes in conclusions make Do my changes in conclusions make

sense in light of the current data?sense in light of the current data? Can I explain what happened to the client?Can I explain what happened to the client?

DocumentationDocumentation

What did we agree to do?What did we agree to do? Who, what, when, how much?Who, what, when, how much? Contract or engagement letter is bestContract or engagement letter is best

Could be informal with a regular clientCould be informal with a regular client Minimum Email confirmation of a telephone Minimum Email confirmation of a telephone

callcall


What data did we ask for?What data did we ask for? What did we get?What did we get? Was it what we needed?Was it what we needed? Was it consistent with prior data?Was it consistent with prior data?

Or was it internally consistent?Or was it internally consistent? What did I do to fix it?What did I do to fix it?

Who did I talk to – e:mails to confirm?Who did I talk to – e:mails to confirm? What constitutes documentation that What constitutes documentation that

the data the data didn’tdidn’t need adjustment? need adjustment?


Was I qualified?Was I qualified? Should I document in the project?Should I document in the project?

What standards applied to the What standards applied to the project?project? Did I follow them?Did I follow them? How do I document this? Do I need to?How do I document this? Do I need to?

What techniques did I use?What techniques did I use? Should I document what I decided NOT to Should I document what I decided NOT to

use?use?


Did I release any draft conclusions to Did I release any draft conclusions to the client?the client? What do I mean by a draft?What do I mean by a draft? Did I document that to the client?Did I document that to the client?

What changed in the final report?What changed in the final report? Did I meet with the client?Did I meet with the client? What did I learn that changed my What did I learn that changed my

assumptions?assumptions?


Can another actuary follow my Can another actuary follow my calculations?calculations?

Was there peer review?Was there peer review? What did the peer reviewer conclude?What did the peer reviewer conclude? Did I make appropriate changes?Did I make appropriate changes?

Did I follow up with the client?Did I follow up with the client? Were they satisfied?Were they satisfied?

Was there additional follow up?Was there additional follow up? Auditors, regulators, etc.Auditors, regulators, etc.

ProfessionalismProfessionalism

Don’t leave home without it.Don’t leave home without it.

ethics and professionalism: a consulting actuary’s perspective mary frances miller case meeting...

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