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Ethical Issues Forum

Uncommon Assumptions

Editor's Note: This article is part of a series written by members of the CAS Committee on Professionalism Education (COPE) and the Actuarial Board of Counseling and Discipline (ABCD). The opinions expressed by readers and authors are for discussion purposes only and should not be used to prejudge the disposition of any actual case or modify published professional standards as they August apply in real-life situations.

You are an ACAS and work for ABC insurance company in the ratemaking department. ABC is the largest writer of homeowners insurance in the state. Your boss, Mr. Slick, FCAS, asks you to put together a homeowners rate filing that he intends to sign. Your analysis results in an indicated rate decrease of 5 percent. Mr. Slick reviews your work and tells you that management has decided to file for a 15 percent increase. He asks you to change some assumptions to produce the desired 15 percent rate increase indication. You believe these changes are somewhat arbitrary and result in an unreasonable rate indication.

Later that afternoon, you get a chance to express your concerns to Mr. Slick. He tells you not to worry about it because he is the only one signing the rate filing and he believes that the proposed rates are reasonable. In addition, he tells you that the 15 percent rate increase will put your company's rates on a level that is comparable to the industry. Should you go ahead and make the requested changes to your rate level indication even though you believe that the result is unreasonable?

According to Actuarial Standard of Practice Number 41, Actuarial Communications, "The actuary issuing an actuarial communication should ensure that the actuarial communication clearly identifies the actuary as being responsible for it whenever that responsibility is not already apparent." Your boss is the only one signing the rate filing, and therefore, assumes all responsibility for its contents.

Also, you already attempted to resolve the situation with your boss as required by Precept 13 of the Code of Professional Conduct and your boss provided reasons why he believes that the adjustments were reasonable. You should not refuse to do the work just because of a difference in opinion. Besides, the rate filing should be reasonable if it results in rates that are comparable with the industry.

Precept 13—An Actuary with knowledge of an apparent, unresolved, material violation of the Code by another Actuary should consider discussing the situation with the other Actuary and attempt to resolve the apparent violation. If such discussion is not attempted or is not successful, the Actuary shall disclose such violation to the appropriate counseling and discipline body of the profession, except where the disclosure would be contrary to Law or divulge Confidential Information.

It would be unprofessional to perform work that you believe is unreasonable simply because you are not signing the rate filing. You have a responsibility under Precept 1 of the Code of Professional Conduct to "…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." If you do not believe the adjustments requested by your boss are reasonable, then you must refuse to do the work or find an alternative solution that is acceptable. Furthermore, if an alternative solution is not acceptable and a revised filing is submitted by Mr. Slick, you have an obligation under Precept 13 to "disclose such violations to the appropriate counseling and discipline body of the profession," as noted before.

Finally, producing a rate filing that results in rates comparable to the industry is not proper justification for modifying your analysis in order to arrive at a predetermined conclusion. Appropriate reasons may exist for why the industry's rates are currently higher than your company, but you should identify the reasons for the difference before you make adjustments to your analysis. Otherwise, you would be in violation of Annotation 1-1 of the Code of Professional Conduct , which states: "An Actuary shall perform Actuarial Service with skill and care."