The Ethical Issues Forum: Deciding What to Keep

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.

Chief Actuary Tom Packrat insists that everything that he and his staff do be fully documented and filed in a folder, report, diskette, or other electronic storage medium. Tom's administrative assistant has advised that the department has run out of storage room and that facilities management refuses to provide more. Systems management has informed him that the department's memory requirements are out of corporate bounds and that no more will be allocated. Both managements insist that the actuarial department needs a more cost-effective records retention and management program. Tom insists that ASOP #9 requires that he document and store every work product, opinion and report that he or his staff produces so that it be readily accessible and saved forever. Tom decides to seek the opinions of two experienced actuarial colleagues, Sharon from a large established company and Ken the consultant.

Tom's questions and his colleagues' answers follow. Since you've probably faced these issues, please share your thoughts and concerns with us.

Question #1—In addition to the seven-year retention requirement, are there any other special documentation requirements with respect to the annual loss reserve opinion? For example, should every method and test utilized in the preparation of the final estimate be retained in some documentation file?

Ken: The American Academy's Loss Reserve Law Manual has proven to be a useful source of state specific information in addition to the NAIC instructions. Of course, to be completely certain that all legal requirements are met, you may want to review the state statutes and regulations yourself or request assistance from your legal department. The documentation file contains only those documents and exhibits that support the opinion. These will include transcribed notes from client meetings and source data and documents provided by the client. This is especially important since ASOP #9 requires disclosure of reliance on a third party. If a new or different analytical approach was employed but did not materially contribute to the final estimate, it would be excluded from the file and not be retained.

Sharon: In addition to the Academy's manual and the state insurance statutes, consider the statutory reporting and tax areas of the company as supplemental information sources. Information gathered from the claims department and others in the company should be maintained in the documentation files along with all analysis efforts. Such information, while not necessarily supporting the conclusions of the opinion, can serve to illuminate the logical thought processes followed to develop the conclusions. Retaining incomplete or unused analysis efforts can also help jog the memory when trying to recreate the reasoning used to produce those conclusions. Ultimately, professional judgment determines what is needed in the documentation file.

Question #2—Is a rate review an actuarial report? Isn't everything that I say or sign considered an actuarial report? Don't I need to keep and document everything?

Ken: A rate review I've prepared for a client is most definitely an actuarial report. The report will assure the client that accepted actuarial practices were employed or will explain any deviation from them. The documentation will include the calculations for trend, loss development, and other items that support the review. Draft versions are never placed in the documentation file. Only the versions that support the final report are retained.

Sharon: A comprehensive rate or experience review presented to senior management is an actuarial report and necessarily needs to comply with ASOP #9. However, not everything that leaves the department under my signature is an actuarial report. The department could not fulfill its corporate mission if every request for information/data were treated as such. For instance, an analyst will honor an underwriting request for driver class ratios after a few issues are clarified. Accident year or calendar year? Incurred or paid?

Question #3—How complete is complete when setting up a documentation file? Should the preliminary indications prepared by analysts be retained along with the final version? In a valuation project involving multiple payout and interest assumptions, shouldn't all of the scenarios be retained in addition to the final one?

Ken: The information and data in the documentation file should support the final report, opinion, review or actuarial document. Nonproductive research or analysis should be excluded because it adds nothing in support of the conclusions in the work product and can make it more difficult to recreate the work later. As credentialed experts, it's expected that our work will be as thorough and as exhaustive as needed in order to comply with the standards of our profession.

Sharon: Documentation files should contain the final product as well as all draft versions and backup material. Project files serve as excellent training tools for inexperienced analysts. If you can't be with them for every step of a new project, they can follow the paper trail in a documentation file learning from the successes and missteps the previous analyst made along the way. In fact, half-finished or unfruitful analyses can be a fertile source for improvements in understanding of the methodology.

Question #4—Are the analysts' and technicians' working files also my responsibility?

Ken: The work completed under my supervision is released with my signature. Therefore, the standards, which guide my work, must also guide the work of the analysts and technicians. It is my responsibility to help them properly document their work in an efficient and cost-effective manner.

Sharon: Working files eventually become documentation files. If the project becomes an actuarial work product, then it becomes the responsibility of the supervising actuary. Otherwise, corporate guidelines for data retention and storage should probably apply. This is especially true for the standard types of experience reports produced on a regularly scheduled basis and distributed to a large corporate audience.

Question #5—Finally, with respect to retention requirements, exactly how do you define a reasonable amount of time?

Ken: With the exception of actuarial opinion documentation or information/data required by some other legal or regulatory authority, retention varies by the type of project and engagement conditions. Well-established, long-term relationships require the maintenance of more extensive historical files than one-time projects. However, there is no need to retain data that is already being retained by the client. Information ages and loses its value. Management and organizational direction changes. You're probably wasting resources on unnecessary retention efforts.

Sharon: Let's not confuse quantity and storage issues with length of time issues. Given the widespread use of electronic data storage (mainframe files, tape libraries, imaging, diskettes, and CDs) the number and size of paper files can be drastically reduced. A more critical consideration is accessibility. What are the archiving standards of your organization? Are duplicate files maintained and updated regularly? Is the data stored in pre-Y2K format? Will tomorrow's software access today's data format?