Actuaries Address Concerns Over Professions Integrity

The actuarial profession in several countries is developing new rules and standards to affirm its integrity and competence to the public, said international representatives at the Casualty Actuarial Society (CAS) annual meeting in Montreal.

Published on December 10, 2004

Speaking at the annual meeting of the CAS, representatives of actuarial associations from Australia, Canada, the United Kingdom and the United States reported on efforts to strengthen the public's confidence in the profession.

Concerns about the actuarial profession's responsibility to the public have been generated recently by the financial problems of major insurers in Australia and the United Kingdom and criticism of the quality of actuarial opinions in the United States.

Mary Frances Miller, president of the CAS, said that the organization's board is looking at ways to improve the credibility of the profession, particularly with regards to doubts about the adequacy of stated loss reserves.

She pointed out that observers of the property/casualty insurance industry and users of P/C insurance company financial statements have expressed significant doubts about the adequacy of stated loss reserves.

She said the board identified a number of initiatives that are under consideration, including increasing the experience requirement for signing a statutory opinion, requiring the actuary to meet regularly with the company's audit committee (with or without management), requiring the audit committee to get an outside opinion, and having the signing actuary certify his/her opinion to the Securities and Exchange Commission.

Other suggestions, including requiring peer review, developing a public track record of opinion signers, and triggering an automatic Actuarial Board for Counseling and Discipline (ABCD) investigation when development exceeds a threshold are intended to "provide more backbone to the actuary," she said.

Graham E. Rogers, president of the Institute of Actuaries of Australia, reported that the collapse of the HIH Insurance Group and a subsequent government investigation raised issues for the actuarial profession which resulted in ways to enhance the standing of the profession and raise public awareness of the actuary's role.

"The actuarial profession is in the spotlight," Rogers said. "There are key issues concerning the proper and timely use of actuarial advice, and the public interest responsibility of actuaries."

Rogers said that the Royal Commission investigating the failure of HIH, the largest casualty insurer in Australia, identified under-reserving by the company as the major reason behind the collapse.

Rogers said that in his examination of the company's failure to heed actuarial advice, the government's chief investigator wondered: "Did anyone stand back and ask themselves the simple question -- Is this right?"

He said that in the wake of HIH, the profession in Australia launched a review of corporate governance standards for the profession.

These efforts include independent peer review of the actuary's work and improving support for actuaries in meeting disclosure duties and responsibilities.

Harvie Brown, president of the Faculty of Actuaries in the United Kingdom, pointed out that many of the same issues involving the actuarial profession had arisen in the wake of serious financial problems with guaranteed annuities sold by Equitable Life Insurance Company (UK). A government investigation into the company led to an independent review of the actuarial profession.

The profession responded with several initiatives it had been considering. One involved the revalidation of professional competence through continuing professional education and practicing certificates. "It is no longer acceptable just to have passed exams," Brown said. "The profession must demonstrate to the public that actuaries are also keeping themselves up to date."

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