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The Ethical Issues Forum

Editor's note: This article is the third in a series written by members of the CAS Committee on Professionalism (COPE) and the Actuarial Board for 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 Professional Standards as they may apply in real-life situations. Click here to view Part I and Click here to view Part II.

The case presented in the previous article concerned an insurance department actuary, Barbara Seville, who had discovered apparent violations of professional standards by Robin Banks, a company actuary. The question raised was whether Seville was obligated to file a complaint with the ABCD regarding Banks' conduct. The case also cited examples of Banks' questionable practices regarding reserve calculations (truncation of loss development at 5 years and no provision for IBNR) and ratemaking (no provision for expenses).

One reader correctly cited the Precept 14 requirement placed on actuaries to disclose knowledge of "apparent, unresolved material violation(s)" of the Code of Conduct to the appropriate counseling and discipline body. The reader was quick to note, however, that there are exceptions to this rule "where the disclosure would divulge confidential information or be contrary to law" and where "the actuary is acting in an adversarial environment involving another actuary."

The questions of confidentiality of information or legality of disclosure are legal questions that depend on the circumstances. However, circumstances may change as an audit or regulatory examination proceeds, especially after an examination report becomes a public document.

The "adversarial environment" exception to the reporting requirement is more difficult to grasp. A reader suggests that there would always be disagreement when one actuary sees an apparent violation by another actuary. He suggests that an adversarial environment exists only when the two actuaries represent clients who are opposing each other. In principle, he believes that the insurance department isn't an opponent, but a referee.

While this may be true generally, regulators are not immune from assuming an adversarial role for political or personal reasons and, in actuality, become a party in opposition. In such circumstances, actuaries like Seville could well find themselves in an adversarial relationship under the reader's guidelines. However, the actuarial profession is likely to consider an environment "adversarial" if the actuary is in court or perhaps a regulatory setting, but not simply because two actuaries disagree.

Questions of confidentiality or "adversarial" environment notwithstanding, Seville has the option of meeting her Precept 14 obligation by discussing the situation with Banks and agreeing upon a course of action to ensure that the apparent violation is resolved.

Precept 14 doesn't distinguish between the obligations of an insurance department actuary, reinsurance actuary, or audit firm actuary as far as the reporting obligation is concerned. A reader suggests that reinsurance and auditing actuaries face a real business cost to their employers if they make it a practice to report clients or brokers to the ABCD for every apparent violation that they face. Such actuaries may decide to document such instances for their own records and cite the reasons such reports were not made for their own protection. Such reasons would include materiality, legality, confidentiality, and any adversarial circumstances that may exist. Such actuaries may also resort to submitting a request for guidance to the ABCD when in doubt, citing circumstances in general terms without revealing names or other identifying information.

Ultimately such actuaries may find themselves in a unique position to do a service for their profession by discussing the apparent breach with the transgressing actuary under the provisions of Annotation 14-2.

The Next Case

The 1997 ABCD Annual Report and Seville/Banks case inspired one of our readers to suggest a subject for the next case.

Minnie Vann, FCAS, MAAA, assistant actuary for the Regressive Casualty Company, submitted a rate filing to the insurance department of South Rampart requesting an 18 percent increase in automobile liability rates for her company. The filing was well documented citing both company and industry experience as well as an analysis of external influence likely to affect insurance costs during the period for which the rates were being proposed.

The department's actuary, Lance Boyle, FCAS, MAAA, told Vann that he could not approve an increase of such magnitude although the proposed rates would still be competitive with other insurers. Boyle further informed Vann that he would approve a nine percent increase and then only if Vann would rewrite her actuarial analysis using factors that Boyle would provide. Vann reluctantly agreed to do so.

What Code violations, if any, are involved here? Again, your comments are requested either by letter to the Actuarial Review at the CAS office, E-mail to actuaryjoe@aol.com or fax to (715) 845-6910. Your name won't be used in the article unless you specifically request it.