Frugal Insurance Company (FIC) initiated operations in 2002 specializing in providing general liability, including construction defect coverage to the construction industry. FIC insureds range from individual contractors to moderately sized construction companies. Given the limited number of competitors, FIC has grown rapidly with 2005 written premium exceeding $75 million. Since inception of the company, FIC has relied on their consulting actuary, Carla Calculator, FCAS, MAAA, to provide the required ratemaking and reserving support. Carla served as FIC's appointed actuary through year-end 2004. Due in part to an effort to reduce costs and in part due to a conflict with Carla, FIC made the decision to hire their first and only in-house actuary.
After an eight-month search, FIC offered this in-house position to Nancy Narrow, ACAS, MAAA. Nancy started with the company on November 1, 2005. Prior to joining FIC, Nancy spent the last seven years in the pricing department of Auto Only Insurance Company (AOIC). Soon after Nancy's start date, Frugal notified the insurance commissioner in their domiciliary state of the change in the appointed actuary from Carla to Nancy.
As year-end approaches, Nancy becomes increasingly uncomfortable with the responsibility of serving as the Frugal appointed actuary, particularly projecting a loss reserve related to the construction defect written by the coverage. Nancy asks the president to consider retaining Carla as the appointed actuary for the upcoming year or at least allow Nancy to hire Carla to assist her in the loss reserve analysis. The president tells Nancy for the first time about the conflict between Carla and Frugal. He proceeds to tell Nancy that he has complete confidence in her ability but refuses to allow Nancy to retain Carla in any fashion.
|As year-end approaches, Nancy becomes increasingly uncomfortable with the responsibility of serving as the Frugal appointed actuary, particularly projecting a loss reserve related to the construction defect written by the coverage. |
Nancy is angry with herself for not more thoughtfully considering the responsibilities of the position before her acceptance but feels like she has no option but to live up to her commitment. Nancy spends several hours reading material from the CAS Web Site related to reserving and other sources containing information on construction defect claims. Nancy completes the year-end reserve analysis by simply rolling forward the assumptions used in the prior year-end report and issues a clean Actuarial Statement of Opinion on Frugal's December 31, 2005 loss and loss adjustment expense reserves. After issuing the opinion letter, Nancy resigns from her position with Frugal.
Has Nancy violated the CAS Code of Professional Conduct or any Standard of Practice?
While not an ideal situation Nancy has not violated the Actuarial Code of Professional Conduct or any applicable standard of practice. She has reacquainted herself with loss reserving principals and researched the coverages addressed in the PSAO.
Precept 2 of the CAS Code of Professional Conduct states: "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." Nancy's lack of experience related to reserving and lack of knowledge related to the coverages written by the company result in a violation of this precept. Due to the nature of this Public Statement of Actuarial Opinion, Nancy has also failed to act in a manner that fulfills the profession's responsibility to the public and upholds the reputation of the actuarial profession as required by Precept 1 of the Code.