Course on Professionalism ASOP 1 – Introductory Actuarial Standard of Practice (ASOP)

Outline Role of Actuarial Standards Board (ASB) Format of the ASOPs Common ASOP Terms Purpose of the ASOPs Applying the ASOPs

Role of Actuarial Standards Board (ASB) Responsible for promulgating ASOPs Has exclusive authority to determine ASOP needs and content All actuaries required to observe ASOPs

Format of ASOPs Components of an ASOP: –Transmittal memorandum –The ASOP itself (4 sections) –One or more supporting appendices ASOP Sections: –Purpose, scope, cross references and effective date –Definitions and discussion of special terms –Analysis of issues and recommended practices –Communications and disclosures Transmittal letter and appendices are not binding but may be useful in interpreting the standard

Common ASOP Terms ASOPs include a list of definitions for certain terms used in the ASOP Various commonly-used words, which are not defined in specific ASOPs, are defined in ASOP 1

Common ASOP Terms Must/Should – used throughout the ASOPs to delineate the responsibilities of the actuary – “Must” means that the ASB does not anticipate that the actuary will have any reasonable alternative but to follow a particular course of action – “Should” indicates appropriate practice for an actuary – Failure to follow a “must” or “should” directive is a deviation from the ASOPs and requires documentation (See ASOP 41, Actuarial Communications, for further guidance)

Common ASOP Terms May – indicates that the course of action described is reasonable and appropriate in many circumstances – Does not indicate that the course of action is appropriate in all circumstances, nor does it imply that alternate courses of action are wrong Material – an item is material if its omission or misstatement could influence a decision of an intended user – ASOP guidance only applies to material items

Purpose of ASOPs Identify what the actuary should consider, do, document, and disclose when rendering actuarial services Deviation from one or more provisions of an ASOP should not, in and of itself, be presumed to be malpractice – Actuaries may reasonably deviate from the guidance of the ASOPs

Applying ASOPs ASOPs are principles-based, rather than rules-based, and don’t dictate every step in an assignment nor mandate a particular outcome Actuaries should take a good faith approach in complying with the ASOPs ASOPs do not mandate a single approach, but rather provide guidance Emphasize process over outcome – actuaries can reasonably disagree

Applying ASOPs ASOPs should not be interpreted as having applicability beyond the stated scope and purpose It is the responsibility of the actuary to determine which ASOPs apply to the task at hand Most ASOPs are task-specific, dealing with particular kinds of actuarial services (e.g., reserving) Laws, statutes, and regulations may require the actuary to deviate from the guidance of the ASOPs – In such cases, the requirements of the law supersede the ASOP guidance

Question #1 Which of the following statements is true? A.ASOPs apply to all items in an actuarial work product, regardless of their level of materiality. B.The appendices of an ASOP are not binding. C.ASOPs generally dictate all of the necessary steps in an assignment. D.The actuary is not permitted to deviate from the guidance of an ASOP.

Answer #1 The correct answer is B: The appendices of an ASOP are not binding

CONGRATULATIONS You have successfully completed this session on ASOP 1