1. COURSE ON PROFESSIONALISM ASOP #17 - Expert Testimony by Actuaries

2. 2 Purpose and Scope Focus is on preparation and delivery of sound expert testimony by actuaries Focus is on preparation and delivery of sound expert testimony by actuaries Provide guidance to actuary Provide guidance to actuary Applies to actuaries testifying as actuarial experts or communicating an actuarial opinion in a public forum Applies to actuaries testifying as actuarial experts or communicating an actuarial opinion in a public forum Nothing in this standard is intended to discourage reasonable differences of actuarial opinion or to inhibit responsible creativity in advancing the practice of actuarial science Nothing in this standard is intended to discourage reasonable differences of actuarial opinion or to inhibit responsible creativity in advancing the practice of actuarial science Effective April 15, 1991 Effective April 15, 1991

3. 3 Goal Actuarial opinions that are supportable and carefully prepared and explained, though divergent, can generate confidence in actuaries’ competence to evaluate the costs and benefits of future contingent events

4. 4 Definitions Expert - qualified by “knowledge, skill, experience, training or education” to render an opinion Expert - qualified by “knowledge, skill, experience, training or education” to render an opinion Actuarial Opinion - conclusion drawn by actuary from actuarial knowledge or from application of one or more actuarial methods to a body of data Actuarial Opinion - conclusion drawn by actuary from actuarial knowledge or from application of one or more actuarial methods to a body of data Testimony - communication of an actuarial opinion in a public forum Testimony - communication of an actuarial opinion in a public forum Oral or written Oral or written Direct or responsive Direct or responsive Formal or informal Formal or informal

5. 5 Standards and Disclosures Actuary should be knowledgeable about this standard, other relevant standards and AAA Guides and Interpretative Opinions as to Professional Conduct Actuary should be knowledgeable about this standard, other relevant standards and AAA Guides and Interpretative Opinions as to Professional Conduct Disclose conflicts of interest - full disclosure of facts if unsure whether conflict exists Disclose conflicts of interest - full disclosure of facts if unsure whether conflict exists Advocacy - when acting as advocate, remember that reasonable assumptions, appropriate methods and supportable opinions should be used Advocacy - when acting as advocate, remember that reasonable assumptions, appropriate methods and supportable opinions should be used

6. 6 Identification and Compliance Identify Client (or Principal) - even though client may have representative (attorney), ultimate responsibility is to client Identify Client (or Principal) - even though client may have representative (attorney), ultimate responsibility is to client Obligated to provide a valid actuarial opinion Obligated to provide a valid actuarial opinion Comply with laws and regulations Comply with laws and regulations If believe law conflicts with sound actuarial principles, disclose conflict but follow law If believe law conflicts with sound actuarial principles, disclose conflict but follow law

7. 7 Question #1 The definition of “Testimony” includes the following: The definition of “Testimony” includes the following:  A. Expert Opinions given in a formal setting.  B. Expert Opinions given in an informal setting.  C. Expert Opinions provided through written testimony.  D. All of the above.

8. 8 Data, Assumptions & Methods Responsible for identifying data Responsible for identifying data Not responsible for validity, but review reasonableness Not responsible for validity, but review reasonableness Disclose any data limitations that might affect results Disclose any data limitations that might affect results Actuary is responsible for assumptions Actuary is responsible for assumptions Be prepared to conduct additional calculations in certain forum Be prepared to conduct additional calculations in certain forum If asked to use other assumptions - make clear results don’t represent actuary’s own expert opinion If asked to use other assumptions - make clear results don’t represent actuary’s own expert opinion Use methods in actuarial literature Use methods in actuarial literature Establish validity if not from literature Establish validity if not from literature

9. 9 Communication Keep background of audience in mind when testifying Keep background of audience in mind when testifying Explain technical terminology and concepts so understood by audience Explain technical terminology and concepts so understood by audience It is beneficial for the actuary to provide expert testimony as clearly as possible It is beneficial for the actuary to provide expert testimony as clearly as possible

10. 10 Cross Examination Respond truthfully but need not volunteer information not in best interest of client Respond truthfully but need not volunteer information not in best interest of client Don’t accept Don’t accept  narrowing of field in attempt to be portray as inexpert  just a “guess” - don’t allow concept of uncertainty to discredit value of work

11. 11 Communications and Disclosures Consistency with prior testimony Consistency with prior testimony  Be prepared to explain why statements are different Errors Errors  Disclose material errors in testimony as soon as possible Deviate from standard Deviate from standard  Disclose and explain why reasonable to deviate

12. 12 Practical Examples An actuary may be asked to give expert testimony concerning a broad range of issues such as: An actuary may be asked to give expert testimony concerning a broad range of issues such as: Adequacy or appropriateness of reserves, premium rates, pricing or underwriting procedures, or provisions for administrative costs Adequacy or appropriateness of reserves, premium rates, pricing or underwriting procedures, or provisions for administrative costs Cost impact of risk classification systems, tort liability decisions, or legislative/regulatory proposals Cost impact of risk classification systems, tort liability decisions, or legislative/regulatory proposals Relationships between risk and return on investments Relationships between risk and return on investments Value of an insurance company or other entity Value of an insurance company or other entity

13. 13 Question #2 True or False: Actuarial estimates can be characterized as “just a guess.” True or False: Actuarial estimates can be characterized as “just a guess.” True True False False

14. 14 Practical Examples Actuarial expert testimony may be given in many forums including, but not limited to, the following: Actuarial expert testimony may be given in many forums including, but not limited to, the following:  Rate Hearings (filer, regulator, or consumer advocate)  Civil Litigation (both executive and legislative branch proceedings)  Criminal Trials

15. 15 Rate Hearing Advantages include general understanding of actuarial issues and reliance on pre-filed testimony Advantages include general understanding of actuarial issues and reliance on pre-filed testimony Disadvantages include the fact that advocacy often trumps expertise and that there could be political issues surrounding the hearing Disadvantages include the fact that advocacy often trumps expertise and that there could be political issues surrounding the hearing It is recommended to know the filing, the history, the environment and not to overstate precision It is recommended to know the filing, the history, the environment and not to overstate precision The classic example, “What is the proper profit provision and how should it be reflected in the rates?” The classic example, “What is the proper profit provision and how should it be reflected in the rates?”

16. 16 Civil Litigation Advantages include adequate time for preparation and tremendous testimony through deposition. There is also less advocacy than rate hearings Advantages include adequate time for preparation and tremendous testimony through deposition. There is also less advocacy than rate hearings Disadvantages include the fact that there is little understanding of actuarial issues, that the jury can lack focus and education, and that cross-examination can be brutal Disadvantages include the fact that there is little understanding of actuarial issues, that the jury can lack focus and education, and that cross-examination can be brutal It is recommended to have through knowledge of the subject matter, triple-check all calculations, be consistent with prior testimony, and document everything It is recommended to have through knowledge of the subject matter, triple-check all calculations, be consistent with prior testimony, and document everything The classic example, “Should the reserving actuary have anticipated all or part of the adverse development?” The classic example, “Should the reserving actuary have anticipated all or part of the adverse development?”

17. 17 Criminal Trial Advantages include the fact that this is an interesting application of actuarial science and a chance to meet a new group of people Advantages include the fact that this is an interesting application of actuarial science and a chance to meet a new group of people Disadvantages include the fact that there is a lot of pressure and threats can be real or implied Disadvantages include the fact that there is a lot of pressure and threats can be real or implied It is recommended to avoid advocacy at all costs, to keep it simple, and to act as though you were the expert for both sides It is recommended to avoid advocacy at all costs, to keep it simple, and to act as though you were the expert for both sides The classic example, “What are the chances that four homes owned by a single individual over a nine year period would be substantially destroyed by fire through random occurrence?” The classic example, “What are the chances that four homes owned by a single individual over a nine year period would be substantially destroyed by fire through random occurrence?”

18. 18 Question #3 True or False: When law conflicts with sound Actuarial Principles, the law should be followed with disclosure of the appropriate actuarial principles. True or False: When law conflicts with sound Actuarial Principles, the law should be followed with disclosure of the appropriate actuarial principles. True True False False

19. 19 Conclusion Actuaries benefit the public when they apply their professional skills in a manner that promotes general welfare, and they enhance relationships with their professional peers when they present their work fairly and give credit where appropriate. Actuaries benefit the public when they apply their professional skills in a manner that promotes general welfare, and they enhance relationships with their professional peers when they present their work fairly and give credit where appropriate.