The Ethical Issues Forum: A Case For The ABCD?

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 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 published professional standards as they may apply in real life situations.

A Case For The ABCD?
ABCD Board member Mae Day, FCAS, MAAA, noticed an article in the Small Street Journal under the headline, "Actuary to Blame Says Commissioner Presume." Upon reading the article, Day learned that Insurance Commissioner Livingston I. Presume of the state of Confusion held a press conference to announce that the insolvency of the Adequate Casualty Company might have been averted if its actuary Phil Harmonic had not understated reserves for the last two years. The commissioner asserted that this prevented the detection of a weak financial condition that could have been corrected by remedial regulatory action.

Furthermore, according to the commissioner, Harmonic had experienced a financial gain by understating reserves under the company's profit sharing plan.

Day checked the Directory of Actuarial Memberships and found that Harmonic was both a FCAS and a MAAA.

What should Day do if...

• No complaint is received from an actuary, a policyholder or a regulator?
• A copy of the article is received in the mail and the sender states that it is not a "complaint" but merely "information" for the ABCD?
• A "complaint" is received but the complainant requests anonymity?
• The commissioner files a formal complaint with the ABCD at the same time that a formal suit is filed on behalf of the policyholders?
• Another actuary sends a copy of the article and requests ABCD action "for the good of the profession?"
• A policyholder requests that the ABCD take action against Harmonic?

Your comments are requested and will be included in a summary of responses to be published in the next issue of the AR. You may send them by letter to the AR at the CAS Office, by E-mail to actuaryjoe@aol.com or by fax to (715) 845-0935. Your name won't be used unless you specifically request it.

The Minnie Vann/Lance Boyle Case
The case in the last issue dealt with a company actuary, Minnie Vann, who was told by a department actuary, Lance Boyle, that a rate filing would be approved for an amount less than that originally requested and then only if Vann would rewrite her actuarial analysis using factors that Boyle would provide.

A reader points out that none or a variety of violations may be involved depending on the scenario.

Scenario 1 would be the acceptance by Vann to amend the filing since the conclusion and factors supplied by Boyle were accompanied and derived by accepted actuarial principles and standards. The only requirement in such a situation would be for Vann to state that the amendment was due to the reliance upon another as required by Annotation 5-2.

Scenario 2 would be Vann agreeing to amend the filing, but Boyle cannot or will not supply actuarial verification or derivation of such factors. Again Vann has the obligation of disclosure. As for Boyle, he may have violated Precepts 1 and 2 (professional integrity) depending on whether factors were the product of actuarial science or political science, Precept 4 (standards of practice), Precept 5 (disclosure), Precept 8 (conflict of interest) if the factors were politically derived as the reader considers both the public and the insurance company to be clients of a department actuary, Precept 9 (control of work product) if factors were derived on an unsupported basis to "low ball" the rates to the point that they may be misleading or to evade the rate standards stated in the law. In any case, the reader goes on to say that the standard on documentation clearly was breached.

Under scenario 3, Vann rejects Boyle's offer and withdraws the filing. Boyle still has to meet criteria under scenario 2 if the factors were not supported or derived or if he refuses to release actuarial documentation (Standard of Practice No. 9).

Finally, under scenario 4, Vann rejects Boyle's offer and challenges his finding either through court, administrative hearing or arbitration. In such a case, Standard of Practice No. 17 (expert witnesses) may come into play and perhaps Precept 11 (courtesy and cooperation) as well as the precepts enumerated under the first three scenarios.

To this we might add that Vann would have the responsibility under Precept 14 (collateral obligations) to either report any material violation of the Code of Conduct by Boyle to the ABCD or take alternative action as prescribed under Annotation 14-2 to resolve the apparent violation.