Ethical Issues Forum: You Shouldn't Have! When Is Accepting Gifts Acceptable?

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 may apply in real-life situations.

A particular consulting actuary, Bob, has provided consulting services to XYZ Widget Company for the past several years. Approximately three years ago, XYZ made a number of risk management and claims handling changes. At the time of these changes, despite several meetings with XYZ management, it was difficult to quantify the impact on the development pattern of losses under XYZ's self-insured program. Since it was not possible to quantify the changes, Bob decided to incorporate any changes into his projections as the loss experience began to materialize. In the year after the changes, XYZ experienced a reduction in losses. Bob gave some weight to the changes, but since XYZ's experience had historically been quite volatile, his selected assumptions were based on a longer-term average. The second year again came in favorably. Bob again adjusted his assumptions to reflect a portion of this favorable experience. After both the year one and two reports, the management of XYZ tried to convince Bob that his figures were too high and that the actual improvement was not being fully reflected.

After a third year of favorable experience, Bob decided that he had enough experience to quantify the impact of the changes and that the three years could reasonably be used to estimate reasonably the magnitude of the impact. Bob changed his assumptions to reflect fully the level of losses experienced over the past three years. While the projected ultimate losses had decreased in years one and two, the change in selected loss development patterns in year three resulted in a dramatic reduction in the projections. In addition, it should be noted that due to some personnel changes at XYZ, the data for the year three study was provided two weeks later than in prior years. To meet the company's deadline, Bob canceled his family vacation and worked around the clock for two weeks to complete the project within the time frame required by the company.

Bob shared his report with the risk management department and one week later came to XYZ to present the findings formally to the senior management team. As would be expected, the results of Bob's report were well received by the company at this presentation. After the presentation, the risk manager of XYZ handed Bob an envelope with an all expense paid trip to Hawaii for him and his family. The risk manager explained that this was a sign of XYZ's gratitude to Bob.

Should Bob accept the gift?

No. While not specifically addressing gifts, Precept 1 of the Code of Professional Conduct requires the actuary to act in a manner to uphold the reputation of the actuarial profession and Precept 2 requires the actuary to perform services with integrity, skill, and care. Bob's acceptance of this gift under the current circumstance at XYZ gives the appearance that he was influenced into reducing his figures. This appearance of impropriety hurts the standing of the actuarial profession.

Yes. Bob can accept the vacation. Not only was the vacation given to Bob after his analysis was completed, but, more importantly, Bob was unaware of the possibility of any gift in the course of his analysis. As a consequence the vacation clearly did not have an impact on the results of his analysis. In addition, this gift is a type of replacement for the vacation that Bob missed to complete XYZ's report in the shortened time frame. It is not uncommon in the business world for a company to charge more for "express" service; XYZ's gift simply rewards Bob for his extraordinary service.