Actuarial Board for Counseling and
Discipline
PROFESSIONALISM
IABA Annual Meeting
Atlanta, Georgia
August 4, 2012
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Copyright © 2010 by the American Academy of Actuaries
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Actuarial Board for Counseling and
Discipline
Codes of Professional
Conduct
Candidates’ Code &
Members’ Code
Robert J. Rietz FSA, MAAA, FCA, MSPA
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Tetteh Otuteye ACAS, MAAA
Copyright © 2010 by the American Academy of Actuaries
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Agenda
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•
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Background on ABCD
Code of Conduct for Candidates
Code of Professional Conduct
Ethical Dilemmas
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Copyright © 2010 by the American Academy of Actuaries
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Actuarial Board for Counseling and
Discipline
ABCD was established in 1991 by the
U.S. actuarial organizations to
– Investigate alleged violations of the
Code of Professional Conduct by
members and recommend discipline
– Counsel (provide guidance to)
members
– Mediate disputes between members
and others.
Copyright © 2010 by the American Academy of Actuaries
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ABCD Membership
Appointed by Selection Committee (Presidents and
Presidents-elect of U.S. organizations)
Member
Paul Fleischacker, Chairperson
Janet Fagan, Vice Chairperson
Robert Rietz, Vice Chairperson
Nancy Behrens
James Gutterman
Curtis Huntington
Kurt Piper
John Purple
Kathleen Riley
Area of Practice
Health
Casualty
Pension
Life
Health
Life
Pensions
Casualty
Pension
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Copyright © 2010 by the American Academy of Actuaries
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ABCD Processes
• Follow Article X of AAA bylaws and
ABCD Rules of Procedure
• All ABCD inquiries, guidance and
mediation confidential, unless
– Actuary makes public or agrees to
publication
– Court requires disclosure
– Redacted, generic situation used for
educational purposes
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An ABCD Inquiry
• Is a fact-finding effort, not an
adversarial forum
• Examines whether or not an actuary
materially violated the Code of
Professional Conduct
• Does not administer discipline, but
may recommend discipline to the
actuary’s membership organizations7
Copyright © 2010 by the American Academy of Actuaries
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ABCD Inquiry
• Based on complaint from individual,
typically
– Client
– Regulator
– Other actuary
• At ABCD’s initiative
– Based on public document that
suggests possible violation
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Request for Guidance
Example RFG Topics
• How do I know if I am qualified?
• How can I become qualified?
• How can I do a job that involves more than one area of
expertise?
• How much can I rely on my supervisor?
• How much can I rely on my staff?
• How much documentation of my work should I save?
What if I leave my company?
• When should I refuse an assignment?
• When should I make a complaint about another actuary?
• When is a violation of the Code material?
• When is a violation of the Code resolved?
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Request for Guidance
• Private guidance by ABCD member
– Expresses member’s own opinion
• Private guidance by ABCD
– Expresses views of board
• Public guidance by ABCD
–
–
–
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At request or agreement of actuary(ies)
Provides guidance to profession
Expresses views of board
Usually printed in Contingencies
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Mediation
• If all parties agree
• Facilitate resolution of issue without
inquiry
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2011 Caseload
• 55 Requests for Guidance
• 21 Discipline cases
– 9 pension
– 6 life
– 5 casualty
– 1 health
– Evenly split between conduct and
practice
Copyright © 2010 by the American Academy of Actuaries
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Contacting the ABCD
• Letter: 1850 M St., N.W., Suite 300,
Washington, D.C. 20036
• Telephone: (202) 223-8196; (202) 8721948 (fax)
• Website: www.abcdboard.org
• Contacting any individual ABCD member
or ABCD staff (contact information on website) 13
Copyright © 2010 by the American Academy of Actuaries
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Code of Conduct for Candidates
• Applicable to Actuarial Candidates
Defined as a person who has
registered for or completed any
SoA (or CAS) educational or
evaluative activity, but is NOT a
member (ASA, ACAS, CERA).
• Seven Rules
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Code of Conduct for Candidates
• If performing actuarial work, client
or employer is defined as the
‘Principal’
• ‘Actuarial Services’ are professional
services provided to a Principal
including rendering advice,
recommendations, findings based
on actuarial considerations.
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Code of Conduct for Candidates
Effective 1 December 2008
• Rule 1: Act honestly, with integrity
and competence, to uphold
reputation of the profession.
• Rule 2: Not engage in any conduct
involving dishonesty, fraud, deceit
or commit any act reflecting
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adversely on profession.
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Code of Conduct for Candidates
• Rule 3: Perform Actuarial Services
with courtesy and professional
respect and cooperate in Principal’s
interest.
• Rule 4: Shall strictly comply [CAS:
adhere] with [letter and spirit of –
SoA only] Rules and Regulations.
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Code of Conduct for Candidates
• Rule 5: Not authorized to use
SoA/CAS membership designations
until admitted by SoA/CAS.
• Rule 6: Not disclose any
confidential information unless
authorized by Principal or required
by law, statute or regulation.
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Code of Conduct for Candidates
• Rule 7: Respond promptly,
truthfully and fully to any request for
information and cooperate fully with
appropriate disciplinary body.
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Copyright © 2010 by the American Academy of Actuaries
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U.S. Code of Professional Conduct
• The revised U.S. Code of Professional
Conduct (“Code”) was adopted by the
five U.S.-based actuarial organizations
(Academy, ASPPA, CAS, CCA & SoA),
and took effect 1 January 2001.
• The Code sets forth professional/ethical
standards for actuarial members of the
five U.S.-based actuarial organizations.
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U.S. Code of Professional Conduct
• The Code contains 14 Precepts, along
with annotations providing further
guidance on adhering to the Precepts.
• The Precepts are standards that must be
followed by credentialed actuaries who
are members of one of the U.S.-based
organizations or whose member
organizations require their members to
follow the U.S. Code.
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U.S. Code of Professional Conduct
• Precept 1 Professional Integrity:
An actuary shall act honestly, with
integrity and competence, and in a
manner to fulfill the profession’s
responsibility to the public and to
uphold the reputation of the actuarial
profession
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U.S. Code of Professional Conduct
• Precept 2 Qualification Standards:
An Actuary shall perform Actuarial
Services only when the Actuary is
qualified to do so on the basis of basic
and continuing education and experience
and only when the Actuary satisfies
applicable qualification standards.
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U.S. Code of Professional Conduct
• Precept 3 Standards of Practice
An Actuary shall ensure that Actuarial
Services performed by or under the
direction of the Actuary satisfy applicable
standards of practice.
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U.S. Code of Professional Conduct
• Precept 4 Communications
An Actuary who issues an Actuarial
Communication shall take steps to
ensure that is clear and appropriate
to the circumstances and audience
and satisfies applicable Standards
of Practice.
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U.S. Code of Professional Conduct
• Precept 5 Communications
Appropriately identify the principals
and describe the capacity in which
you serve.
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U.S. Code of Professional Conduct
• Precept 6 Disclosure
Make appropriate and timely
disclosure to present or prospective
principals of sources of all direct
and indirect material compensation
you or your firm receives that
relates to any assignment for that
principal.
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U.S. Code of Professional Conduct
• Precept 7 Conflict of Interest
Do not perform actuarial services
unless:
1. your ability to act fairly is unimpaired;
2. you have disclosed conflict to all;
AND
3. you secure agreement from all
principals.
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U.S. Code of Professional Conduct
• Precept 8 Control of Work
Product
Take reasonable steps to ensure
your services are not used to
mislead other parties.
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U.S. Code of Professional Conduct
• Precept 9 Confidentiality
Do not disclose confidential
information to another unless
authorized by principal OR required
by law.
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U.S. Code of Professional Conduct
• Precept 10 Courtesy and
Cooperation
Perform actuarial services with
courtesy and professional respect
and cooperate with others in the
principal’s interest.
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U.S. Code of Professional Conduct
• Precept 11 Advertising
Do not engage in advertising or
business solicitation activities that
are false or misleading.
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U.S. Code of Professional Conduct
• Precept 12 Titles and
Designations
Use membership titles and
designations only in conformity with
authorized practices.
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U.S. Code of Professional Conduct
• Precept 13 Violations of the Code
If you know of an apparent,
unresolved, material violation of the
Code by another actuary and have
attempted to resolve that violation
through discussions that have been
unsuccessful, you should disclose
the violation to the ABCD.
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U.S. Code of Professional Conduct
• Precept 14 Cooperation with
ABCD
Respond promptly, truthfully and
fully to requests from the ABCD
subject to restrictions on
confidentiality and those imposed
by law.
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A Sidenote on Integrity & Ethics
Precept 1 Professional Integrity:
An actuary shall act honestly, with integrity and competence,
and in a manner to fulfill the profession’s responsibility to
the public and to uphold the reputation of the actuarial
profession
Rule 1:
Act honestly, with integrity and competence, to uphold
reputation of the profession.
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Copyright © 2010 by the American Academy of Actuaries
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A Sidenote on Integrity & Ethics
• Ethics is defined as moral principles that guide our
behaviour
• Morals is defined as principles of right and wrong
behaviour
• Moral behaviour also means to be concerned with, based
on, or adhering to the code of behaviour that is
considered right or acceptable in a particular society
rather than legal rights and duties
• Three dominant moral philosophies
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Principled conscience
–
Social conscience
–
Rule compliance
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[Source: Oxford English Dictionary; Ethicability by Roger Steare; Tony
Hewitt]
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A Sidenote on Integrity & Ethics
You are pitching for a new client but your experience is
lacking in one area. You are truthful because…
•
•
•
•
Honesty is an important principle for me (Principled conscience)
If everyone lied, who could we trust? (Social conscience)
It would be fraud and I could be fired if found out later (Rule
Conscience)
All of the above?
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A Sidenote on Integrity & Ethics
Integrity is the sum of all those principles that guide the way we live
and behave with others:
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–
–
–
–
–
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Prudence: wisdom, caution, good sense, mindfulness
Justice: fairness, impartiality, rights-and-duties
Fortitude: courage, guts, determination [fear/stubbornness]
Temperance: self-discipline, self-control, patience
Faith: trust, loyalty, commitment [betrayal/naivety]
Hope: cheerfulness, confidence, optimism
Love: honesty, openness, kindness
Excellence: doing our best, quality [mediocrity/perfectionism]
Respect: courtesy, respect, manners
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[Source: Ethicability by Roger Steare]
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ETHICAL DILEMMAS
Case Studies
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ETHICAL DILEMMAS
Analyze the dilemma carefully: who’s involved, what are the facts,
what are the options?
Ask the RIGHT questions:
–Rules: What are the rules?
–Integrity: How do your principles guide you?
–Good: Who would benefit and how?
–Harm: Who could be harmed and how?
–Truth: Are we being honest and accountable?
Test your decision: does it build trust, will it stand the test of time,
have you shown courage?
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[Source: Ethicabilityby Roger Steare]
Copyright © 2010 by the American Academy of Actuaries
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Case Study 1
You have prepared a proposal for a
major government contract that
could be worth $10 million over the
next 5 years and, if you win it,
would really establish your new firm
(which is finding the going pretty
tough).
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Case Study 1
You are now flying to Washington to
present to the selection panel, and
cannot help noticing that two
partners from a (rather sleepy)
large professional services firm are
sitting in the two seats in front of
you. The seat beside you is vacant.
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Case Study 1
You know who they are, but are
pretty sure they don’t know who you
are. They are discussing the same
project that you are concerned with.
They are your key competitor for
the business, and if your firm is to
survive, you have to win against
them, and soon.
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Case Study 1
Try to answer yes or no, and be
prepared to give reasons.
• A lot of very useful-sounding
numbers are mentioned. Is it OK to
take notes?
• It’s too much to write down. OK to
turn on your tape recorder?
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Case Study 1
• They leave papers in the seat
pocket. They’re not marked
“Confidential”. OK to take them?
• Is it OK to listen actively, hoping to
pick up useful information?
• They are marked “Confidential”.
OK to take them now?
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• Etc.
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Case Study 2
Charlie Schmidlap is a senior actuary in KantFin(US), the
US subsidiary of a global firm called KantFinGroup
• KantFin sells financial reinsurance products to insurance
clients
• Schmidlap is shocked to learn – off the record – from an
auditor that:
– KantFin’s clients are being investigated for producing
misleading financial statements
– The root cause of these misrepresentions appears to be
KantFin’s products
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Copyright © 2010 by the American Academy of Actuaries
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Case Study 2
1.
What would you do in Schmidlap’s position?
Why? Why not?
Nothing – off-the-record and so no need to get involved
2.
Nothing – the issue belongs to clients and their
auditors
3.
Nothing – not an actuarial issue
4.
Speak up internally to allow KantFin to address the
issue
5.
If KantFin fails to act, whistle-blow to the FCAS and the
ABCD
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Other?
6.
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Case Study 2
• Charlie decides to speak up internally.
• He learns that KantFin’s products involve two legs:
– each leg involves a genuine transfer of insurance risk
– each product is legally highly complex, but careful
analysis of both legs shows it is obvious the net risk
transfer is immaterial.
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Case Study 2
Schmidlap is told bluntly by KantFin’s internal lawyer that:
–
KantFin’s products are highly attractive to clients,
and highly profitable to KantFinGroup
–
the products meet all legal and regulatory
requirements
– Any failure to explain the products to auditors and
any misleading financial statements are issues solely for
clients and their auditors
– Schmidlap should stick to his actuarial duties and
not meddle in business issues beyond his competence
–
or else….
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Case Study 2
You are an actuary also employed by KantFin(US).
Charlie consults you. What should you advise him?
Why?
1. Do nothing – it is an issue for clients and their auditors
2. Just ensure carefully worded analytics disclaimers are in place
3. Find another job quietly
4. Use the confidential internal whistle-blowing facility to involve
KantFin’s Ethics Board
5. Whistle-blow confidentially to the FCAS and the ABCD if action
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4 fails
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Case Study 2
Charlie does nothing?
What should you do? Why? Why Not?
1.
Nothing – it’s not your problem.
2.
Nothing – it is an issue for clients and their auditors
3.
Quietly find another job
4.
Involve KantFin’s Ethics Board
5.
Whistle-blow confidentially to the FCAS and the ABCD if
action 4 fails
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Case Study 3
1)
Straight’n’Narrow Actuarial Consultants have been retained by
Schmidlap Enterprises to advise on pension plan funding and
accounting strategies and prepare their actuarial valuations
starting with the 2012 plan year. You are a junior pension
actuary working on this team and tasked with matching the
prior actuary’s 2011 valuation results, as is customary when a
new consulting firm takes over client work. The 2011 valuation
has been finalized and the necessary filings submitted by the
prior actuary. You find a problem with some of the funding
results included in the 2011 valuation report and related
schedule. You realize that fixing the error may require your
client to amend the filing already made and may result in higher
contribution requirements for funding and greater PBGC
premiums (Pension Benefit Guarantee Corporation - pension
insurance from the government).
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What do you do?
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Case Study 3
2)
Now assume you perform additional analysis and
realize the error is immaterial and a correction will have
negligible impact on funding requirements for 2011 and
onwards. Now what?
3)
Now, pretend your company was responsible for last
year’s reports. The actuary responsible is no longer at
your company and correcting the error will have a
material impact.
a) Do nothing – the person responsible is gone, the
work was peer reviewed – it’s no longer your problem.
Pretend you didn’t see it.
b) Notify the client immediately
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c) Other?
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Case Study 3
4)
You are friends with the client’s actuary, and she
informs you confidentially that management is aware of
the numbers, and that they have chosen to maintain
those numbers because it resulted in lower contribution
requirements for the client. The client is going through
some financial difficulty, and revising their numbers
and communicating higher contribution requirements
would put your company at a significant risk of losing
the client.
What do you do?
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Case Study 3
5) You inform your immediate supervisor and are told to bury
the error to avoid the costly and embarrassing situation.
What do you do now?
a) Nothing – do as you’re told.
b) Find a new job.
c) Inform the client anonymously.
d) Contact your company’s internal ethics board/HR
e) Call the ABCD.
f) Something else?
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Case Study 4
You are a P&C actuary working for CashMoney reinsurance
brokers. You meet an underwriter at an insurance conference
who happens to work for a client whose business your firm is
trying to win. After a few too many mojitos, he whips out his
blackberry, and before you can avert your gaze, he shows
you the details of the best quote they’ve received from a rival
brokerage firm.
You return to work with these numbers floating around your
head. What do you do with this information?
a) Keep it to yourself – you shouldn’t know, so pretend you
don’t.
b) Try to forget the details and do your own most thorough
analysis.
c)
Disclose this information to the lead actuary and broker
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on the team.
d) Other?
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Case Study 4
Assume you have done your own thorough analysis and
determined rates that you believe are unbiased. Your
numbers are significantly higher than your competitors’
numbers.
What do you do?
a)
b)
c)
Nothing – your best estimate is all that matters.
Tweak your trend assumptions and loss development
selections downwards to get a more competitive rate:
these are highly judgmental and you have some wiggle
room.
Other?
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Case Study 4
The account manager (who is not an actuary) asks if you
have any insights (perhaps from other analyses or from other
actuaries in the company, etc.) as to how competitive your
rates will be.
What do you do?
a)
b)
c)
d)
Inform him of the existing quote – let him know you doubt
you will win the business because the client is price
sensitive and your best quote is too high.
Tell him you have no idea – that’s his job.
Lie.
Other?
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Case Study 4
You opt to tell the account manager about the competitor’s
pricing. He wants you to modify your estimates even further
than you already have to support a lower rate that he can use
to negotiate with the reinsurance market to beat your
competitor’s rates.
What do you do?
a)
b)
c)
Do what you’re told – getting on his bad side isn’t a good
career move.
Refuse, and start polishing your resume.
Other?
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Actuarial Board for Counseling and
Discipline
QUESTIONS?
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Actuarial Board for Counseling and
Discipline
THANK YOU !
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Contacting the ABCD
• Letter: 1850 M St., N.W., Suite 300,
Washington, D.C. 20036
• Telephone: (202) 223-8196; (202) 8721948 (fax)
• Website: www.abcdboard.org
• Contacting any individual ABCD member
or ABCD staff (contact information on website) 63
Copyright © 2010 by the American Academy of Actuaries
63