1. AE DISCIPLINE ISSUES Moderator: Rob Smithen, FCIA, FSA, MAAA Presented by: Jessie Shaw Gmeiner, MSc, FCIA, FSA John Tarrel, FCIA, FFA, ASA September 5, 2008

2. 2 Agenda  Introduction  Summary of Complaints since 2002  Important Issues  CIA Standards and Rules  Scenarios

3. 3 Introduction Why are we here?  CPC reported reviewing seven complaints against seven individuals related to actuarial evidence for 2007/2008. ComplaintsInd. Life12 Pension811 P&C11 Workers Comp. 0- AE77 Other0- Discipline Bulletin, Vol. 14, No. 2 (May 2008)

4. 4 CPC and Discipline Process  “Complaint” or “Information” referred to Committee on Professional Conduct  20 committee members  Represent all practice areas  2 “public” representatives (non-FCIA’s)  Upon initial review Committee may:  dismiss complaint if not justified prima facie,  Initiate private admonishment proceedings, or  appoint investigation team

5. 5  Based on IT report, the Committee may either:  dismiss complaint (with or without letter of advice)  charge and issue a private admonishment  charge and offer plea with recommendation of sanction  charge and refer to public Disciplinary Tribunal

6. 6  Most complaints not of a very serious nature, but serious enough to warrant a review by the CPC and in several cases resulting in disciplinary action.  Differences in AE practice from other practice areas (i.e. AA or pension) that may contribute to increased exposure to complaints (e.g. competition from non-actuaries, cost pressure, adversarial)

7. 7 Complaints since 2002 15 complaints:  12 Marriage Breakdown (MB)  7 dismissed  minor sanctions appropriate for complaints found to be justified  total of 4 private admonishments (PA’s) and 1 letter of advice  3 General Civil Litigation (GCL)  1 dismissed  2 still active  12 Ontario; 3 Quebec  7 from one non-FCIA competitor (Ontario)

8. 8 Complaints from non-FCIA Competitor  Nature of complaints:  Validation of data  Standards not met  Mathematical errors  Incorrect assumption  Values wrong  5 cases dismissed

9. 9 Other MB Cases Nature of complaints:  Plan member alleged “fraud”  Inadvertently hired by both member & spouse  Actuary hired by plan member, later did non-actuarial work for spouse  Plan member complained about valuation method & other issues  Hired by plan member’s lawyer, later did work for lawyer for spouse Nature of misconduct where sanction applied:  Conflict of interest (3)  Confidentiality (1)  Incomplete reporting/disclosure (1)  Incorrect assumptions re indexing (1)

10. 10 AE Cases (Non-MB)  2 active cases  Nature of complaints:  Rule 1(integrity)  Rule 2 (not qualified)  Rule 3 (failed to meet standards)

11. 11 Differences between MB & GCL  MB is high volume/low fee practice (at least in Ontario)  GCL is low(er) volume/high(er) fee practice (in all jurisdictions)  High volume of MB reports by non-actuaries (in Ontario)  Low volume of GCL reports by non-actuaries (in most provinces)  MB more adversarial between parties (since parties pay)  GCL less adversarial between parties (since insurer pays in most cases) Implications (if any) of these differences?

12. 12 IMPORTANT ISSUES  Making sure work product adheres to standards: suggest periodic review of general standards, specific standards & rules, fulfil CPD requirements  Courts want actuary to be an unbiased objective expert (new Civil Procedure Rules in NS)  Conflict of Interest & Confidentiality in MB cases

13. 13 Conflicts of Interest Resolving Some Issues  When retained by lawyer (or first party), always get name of spouse and other lawyer.  If subsequently approached to do valuation for spouse, clear with lawyer or first party.  If retained by both parties, always provide copies of subsequent calculations to both parties.  At all costs, avoid any verbal counselling which is to the benefit of one party.

14. 14 Standards and Rules  Standards of Practice  very specific in AE field (particularly MB)  breaches to date of a “technical” nature  lack of compliance with Standards leads to a breach of Rule 3  Rules of Professional Conduct  more general than Standards; have broad implications  deal with issues such as: duty to the public integrity professional responsibility ethical conduct upholding the reputation of the profession  breaches can result in major sanctions

15. 15 Making use of the Rules  Rules are:  a resource to guide your practice  should be referred to regularly  If any situation causes concern or doubt review the Rules  Even if no concerns arise review the Rules periodically  Develop sound business practices to avoid violations

16. 16 Rule 3: Standards of Practice  Professional services defined in the Rules  Standards to be observed include:  general standards  practice specific standards  Standards apply to:  assumptions, methods, data, reporting and documentation (“work” in the general standards)  testimony in the courts or before other tribunals

17. 17 Rule 2: Qualification Standard  Pre-requisites for performing professional services include:  member is qualified to do so  member meets applicable qualification standards  Qualification Standard identifies minimum CPD  Meeting minimum CPD is not necessarily sufficient to be considered “qualified”  “Qualified” also involves knowledge of and experience in practice area  Members entering a practice area should seek advice, assistance, mentoring from a qualified, experienced practitioner

18. 18 Rule 5:Conflict of Interest  Conflict of interest may be actual or potential  Performance of services where a conflict exists are subject to strict conditions:  ability to act fairly is unimpaired  full and timely disclosure to all direct users  express agreement of all direct users  “Full and timely disclosure” means:  disclosure of all material facts, and  disclosure should be in writing

19. 19 Rule 5  Conflicts of interest can arise:  when accepting an engagement  when carrying our an engagement  after completing an engagement  Differing legal practice by province does not affect application of Rules (e.g. “collaborative family law” concept in Ontario)

20. 20 Rule 7: Confidentiality  “Confidential information” defined  No disclosure of such information unless:  authorized by client or employer  required to do so under Rule 13  required to do so by CPC, IT, DT or AT regarding disciplinary matter  required to do so by law  No exceptions relating to nature of information (e.g. materiality, significance, implications of disclosure, etc)

21. 21 Rule 1: Professional Integrity  Rule 1 is a “catch-all”  Violation of any other rule almost certainly violates some aspect of Rule 1  Deals with ethical behaviour:  Honesty, integrity, competence  Fulfil responsibility to the public  Uphold the reputation of the profession  Dictionary definition of “ethical” includes “conforming to the ethics of a profession”

22. 22 Rule 1  Annotation to Rule 1 requires a member to:  perform professional services with skill and care  Not associate with anything the member knows or should know to be false or misleading  Not engage in conduct involving dishonesty, fraud, deceit or misrepresentation  Not commit any act that reflects adversely on the profession  Membership in the profession involves both individual and collective responsibility

23. 23 Rule 4: Disclosure  Rule 4 relates to disclosure of all direct and indirect compensation  “indirect compensation” defined broadly  any material consideration..... from any source  includes compensation which has been, or may be, received  Disclosure must be “full and timely” [Annotation 4 – 1]  “full” means “all material facts”  “timely” means “in sufficient time for the client or employer to make an independent decision”  disclosure should be in writing  Annotation 4 – 2 also requires “full and timely” disclosure of any lack of financial or organizational independence related to performance of professional services  Professional services include services rendered to a client or employer

24. 24 Rule 6: Control of Work Product  Rule 6 deals with control of work product in order to avoid misuse of professional services rendered  “Professional services” include:  advice, recommendations or opinions based on actuarial considerations  other services provided from time to time  services may be rendered to client or employer  Member’s obligations are:  to “take reasonable steps” to avoid misuse of services  to ensure clarity and fairness  to ensure that the member is identified as the source of the material

25. 25 Rule 8: Courtesy and Cooperation  Important in AE work because of:  adversarial context  frequency of review of work of other actuaries  demands of viva voce testimony in direct and cross-examination  Member’s obligations include:  performance of services with courtesy and professional respect  avoidance of unjustifiable or improper criticism  cooperation with others in the client’s or employer’s interests  Differences of opinion can, and do, arise [Annotation 8 – 1]  be objective, courteous and respectful

26. 26 Rule 8  Rules do not prevent expression of alternative opinion(s) [Annotation 8 – 2]  such alternative(s) should be “in the best interest of the client or employer”  such opinion(s) should be accompanied by factors that support the alternative(s)  Invitation to advise a client or employer of another member [Annotation 8 – 3]  prudent to consult with other member  request client’s or employer’s consent to such consultation  make informed judgement as to potential violations of Rules which might affect acceptance  Obligations of original member  cooperation in providing data, working papers, documents  must not refuse to consult or cooperate.......  need not provide items of a proprietary nature

27. 27 Rule 9: Advertising  Advertising or business solicitation activities:  must not be false or misleading  must not reflect unfavourably on the profession  must not reflect unfavourably on the competence or integrity of any member  Advertising and business solicitation activities broadly defined:  include all communications by whatever medium, including oral communications

28. 28 Rules 11, 12 & 13  These are grouped under the heading “Collateral Obligations”  CIA disciplinary procedures apply to member found guilty of criminal or similar offence [ Rule 11 ]  Member shall respond to and cooperate fully with CPC, IT, DT or AT regarding disciplinary matter [ Rule 12 ]  Member shall comply with specified procedures if member becomes aware of any material non- compliance by another member [ Rule 13 ]  procedures to be followed are set out in Annotation 13-1, sections 2 and 3  exemptions from following specified procedures are set out in Annotation 13-1 section 4

29. 29 Scenario 1  You prepare a MB report for lawyer A who represents the plan member  Lawyer A transmits the report to lawyer B who represents the plan member’s spouse  You receive a telephone call from lawyer B asking you to explain to her the assumptions and methodology you have used  How do you respond?

30. 30 Scenario 2  You are retained by plaintiff’s counsel to prepare a report in a PI case  As part of the documentation counsel provides you with an expert report concerning the plaintiff’s capacity to perform services  Counsel instructs you to base your loss of services assessment on the data in the expert report  The expert’s opinion regarding the annual value of loss of services is based on Statistics Canada time use data  Having used such data yourself on many occasions you realize that the expert has misinterpreted the Statistics Canada data  What do you do?

31. 31 Scenario 3  You are contacted by a couple who have gone through a breakdown of their marriage  They wish to divide their marital property in an amicable fashion and have not retained legal counsel  They jointly request you to accept an engagement to determine the value of their respective pensions earned during marriage  You are interested in accepting this engagement  How do you proceed?

32. 32 Scenario 4  You accept an engagement from plaintiff’s counsel to prepare an actuarial report in a PI case  Along with the data you subsequently received there are instructions from counsel which you consider professionally unacceptable  You withdraw from the case and return all documentation to counsel  A year later you accept an engagement from a defence counsel to review an actuarial report in a PI case, solely for purposes of assisting counsel in cross-examination of plaintiff’s actuary  After reviewing the report and giving your verbal comments to counsel you realize it relates to the same action you withdrew from a year earlier  What do you do in each of the following cases:  the plaintiff is the same plaintiff whose counsel originally contacted you?  the plaintiff is a different plaintiff in the same action?  How did this situation arise?