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From the President

Are You Qualified?

by Mary Frances Miller

If you practice in the United States,or if your client does business in the U.S., proposed changes to the AAA qualification standards may affect you. If you do not currently sign prescribed statements of actuarial opinion (PSAO), the only written qualification standard that applies today is Precept 2 of the Code of Conduct, which requires you to perform actuarial services only when qualified to do so. Determining whether you are qualified is left to your own judgment. The proposed general qualification standard applies to an expanded category of actuarial services, and it does not leave the decision to your own "look in the mirror" test.

The new qualification standard, if adopted by the AAA Board, will apply to all Statements of Actuarial Opinion (SAO) that go to anyone other than your immediate employer. Membership in the CAS obliges you to comply with the AAA qualification standards for U.S. practice, even if you do not belong to the Academy. First, what constitutes an SAO? According to the new standard:

"...a Statement of Actuarial Opinion is an opinion expressed by an actuary based upon actuarial considerations and intended by that actuary to be relied upon by the outside person or organization to which the opinion is addressed."

By this definition, almost anything that you do that leaves your immediate employer will be covered by the qualification standard.

There are several tests that you must meet to be qualified to sign SAOs in the property/casualty area:

1. Basic education. You need to know which actuarial concepts and techniques are applicable to your assignment and how to apply them successfully. At a minimum, you should have completed examinations in general actuarial mathematics; the identification, evaluation, and management of risk (for property/casualty exposures); and applicable principles of economics and finance.

What if you became a member of the CAS some time ago? Certainly, you passed the actuarial mathematics and risk portions of the exams, and most likely you were tested on economics as well. What about finance? If you previously satisfied the basic education requirements, which in a previous version did not require finance, then you are not required to pass a finance exam.

2. Knowledge of applicable laws and regulations. If you prepare an SAO to comply with a law or regulation, you are obliged to understand the applicable laws and regulations. This knowledge can be obtained through work experience, courses, self-study, or examination. (By the way, if your SAO falls in this category, it is already a PSAO and the current general qualification standard applies.)

3. Experience. You must have experience involving significant responsibility in the property/casualty area of practice. The standard defines sufficient experience qualitatively rather than quantitatively. You must:

" sufficiently experienced to know how to apply proper techniques of validating data and results of analyses, and must have achieved sufficient breadth of perspective to determine properly whether or not all material considerations have been addressed within the Statement of Actuarial Opinion."

4. Continuing education. The first test, however, is whether you have sufficient current education to maintain current knowledge of applicable standards and principles of practice. At a minimum, you will need 12 hours each year of continuing education, just as in the current standard for PSAOs. You must meet the 12-hour standard in each area of practice for which you issue SAOs. (That is, if you also practice as a health actuary, you must have 12 applicable hours in health as well as 12 hours in P&C—although some hours may apply to both). The 12 hours are measured by checking for 24 hours over the preceding two calendar years.

At least six of your annual 12 hours must be in "organized activities," and up to one-third of your time may be devoted to professionalism education. For most actuaries, "organized activity" means attendance at seminars or meetings, where a 50-minute session counts as an "hour." Passing actuarial exams and correspondence courses also counts as organized activity. (Studying for exams and not passing is not considered organized activity!) There is no requirement in the proposed standard that you report your continuing education to anyone, just that you keep accurate records.

I encourage you to read the proposed standard carefully. There are few standards that apply to so broad a population, and it's critical that we adopt an appropriate standard. We can only do that with your input. For instance, would requiring you to report your continuing education help you meet the continuing education requirements? And do you think that otherwise-qualified, experienced actuaries should be required to learn, as part of their continuing education, the new topics that are added to the exam syllabus over time? The comment deadline is December 1, 2004.

I would like to close by drawing your attention to one more qualification standard: the Specific Qualification Standard for the Statement of Actuarial Opinion for the NAIC Property & Casualty Annual Statement. This specific standard is not changed by the AAA proposal. Membership in the CAS alone is not sufficient to sign an NAIC statement. You must meet the additional requirements of the Academy's specific qualification standard. In addition to meeting the general qualification standard, you must have passed the relevant CAS exams on policy forms and coverages; underwriting; marketing; ratemaking; statutory accounting; expense analysis; and premium, loss and expense reserves. That requires exams 5, 6, and U.S.-7 (if you didn't pass the U.S. practice exam, there is an alternative that requires attestation by another actuary). You are also required to have a minimum of three years of experience under review by an actuary who is qualified under the Specific Qualification Standard.

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