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Ethical Issues Forum
Changing Positions 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.
John is chief pricing actuary at ABC Insurance Company (ABC). Bob, who works for XYZ Consulting Company (XYZ), an independent actuarial consulting firm, handles ABC's loss reserving functions, including the Statement of Actuarial Opinion.
Over the past five years, ABC has written a substantial amount of medical malpractice insurance, which as it turns out has performed very poorly. In particular, average claim costs have increased dramatically beyond expectations. In January 2004, John sent Bob the data needed for his analysis of ABC's loss reserves. Last week, Bob issued his preliminary estimates indicating the loss reserves that ABC's management intended to book were deficient by $45 million, which is half of ABC's surplus. Based on this preliminary estimate, Bob would not be able to issue a clean opinion on ABC's reserves.
Due to the significance of Bob's findings, ABC held an emergency meeting with its top management, including John. At the meeting, it was suggested that John should get together with Bob for the purpose of trying to get Bob to lower his estimates. In order to do this, ABC's management asked John to put the most positive spin on anything that would convince Bob to reduce his reserve estimates. Suggestions included telling Bob that ABC's average case reserve level has increased recently (even though it is likely that average paid claims have increased correspondingly) and that ABC's defense costs should be decreasing because they intend to settle claims when there is clear negligence instead of litigating them (even though this will likely increase overall loss costs).
John spends most of his time on pricing issues and therefore does not know if management's suggestions will have a favorable impact on Bob's reserve estimate.
Should John advocate his company's position?
Yes
John will not be lying when he talks to Bob. He simply won't be telling the gut-wrenching truth. Besides, advocating an employer's position is supported by statements made in ASOP 17: Expert Testimony by Actuaries, which states in section 3.4 that, "There may be occasions when an actuary acts as an advocate for a principal when giving expert testimony. Nothing in this standard prohibits the actuary from acting as an advocate."
No
John is violating Precepts 1 and 8 of the Code of Professional Conduct. John is making false representations that are intended to mislead Bob.
Precept 1: An Actuary shall 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.
Precept 8: An Actuary who performs Actuarial Services shall take reasonable steps to ensure that such services are not used to mislead other parties.
