If you are an actuary practicing in the United States, you are (hopefully) aware of the Code of Professional Conduct (the Code). You may have the “little blue book” close at hand, ready to refer to any of the 14 precepts contained within (I personally keep mine on my desk).1 Or your familiarity may stop at what you learned in your actuarial society’s professionalism course.
The Code allows us to uphold the reputation of the actuarial profession, permitting us to continue to be self-regulated. Other professions, such as doctors and lawyers, have regulatory bodies that supervise the actions of their members, enforcing their responsibilities to the public. This paper walks through each precept and provides examples to help illustrate ways we can maintain the public trust. But first, it might be helpful to understand the history and purpose of the Code.
History and purpose
There are five U.S.-based actuarial organizations.2 Prior to 1992, each of these organizations had their own guidelines. This meant that actuaries who belonged to more than one—for example, AAA and CAS —had to comply with separate rules, and there were enough inconsistencies to cause potential conflict.
A Joint Committee on the Code of Professional Conduct was formed to develop a single Code, and after several iterations, the Code as we know it today became effective January 1, 2001, adopted by all five organizations.
The purpose of the Code is to “require Actuaries to adhere to the high standards of conduct, practice, and qualifications of the actuarial profession…”3 A violation of the Code could result in disciplinary action and tarnish the reputation of not only the actuary in violation but also the profession as a whole.
In the Code, the term Actuary (with a capital A) is defined as “an individual who has been admitted to a class of membership to which the Code applies by action of any organization having adopted the Code.” For example, a Member of the American Academy of Actuaries (MAAA) or a Fellow of the Casualty Actuarial Society (FCAS) would both be considered an Actuary under this definition.4
The precepts describe the behaviors and actions that are necessary in order to comply with the Code, outlined below.
Precept 1: Professional Integrity
“An Actuary shall act honestly, with integrity and competence, and in a manner to fulfill the profession’s responsibility to the public and to uphold the reputation of the actuarial profession.”
Because of the overarching nature of Precept 1, a violation of any of the other 13 precepts will also likely result in a violation of this precept. In the 2022 Annual Report from the Actuarial Board of Counseling and Discipline (ABCD), Precept 1 was the most violated of the 14 precepts.5 The annual report provides a summary of alleged violations, outlining the number of inquiries in 2022. Some of the inquiries involved multiple issues, but of the 50 issues alleged, 41 were related to Precept 1.
Violations of this precept fall into three separate categories:
A failure to act with integrity
When an Actuary performs Actuarial Services,6 they are to exercise skill and care. I use the “look at yourself in the mirror test” as a guideline on this precept. If, in performing Actuarial Services, you are too ashamed to face yourself because of your actions, you are likely in violation of Precept 1.
An example of failing to act with integrity would be intentionally understating reserves because you were pressured by your Principal. Of the 41 issues alleged related to Precept 1, 14 of them were from this category.
A failure to perform services with competence
Actuaries undergo rigorous education and experience requirements in order to exercise skill and care. However, if you are performing services outside of your expertise, it would violate this precept.
An extreme example would be if a life Actuary was performing services for a casualty line of business. But a more subtle example would be if a casualty Actuary is setting rates for homeowners insurance but only has commercial insurance reserving experience. Unless you are working with another Actuary who has the appropriate ratemaking experience, you are working outside of your area of expertise. This category comprised seven of the 41 issues alleged related to Precept 1.
A failure to uphold the reputation of the actuarial profession
A lot of focus is placed on violations that happen while performing Actuarial Services, but violations of Precept 1 can stem from what we do in our personal lives as well.
For example, if you are charged with criminal activity, such as driving under the influence of alcohol, and it is highlighted that you are an Actuary, this could tarnish the reputation of the profession, violating this precept. This category totaled 20 of the 41 issues alleged related to Precept 1.
Precept 2: Qualification Standards
“An Actuary shall perform Actuarial Services only when the Actuary is qualified to do so on the basis of basic and continuing education and experience, and only when the Actuary satisfies applicable qualification standards.”
The U.S. Qualification Standards (USQS) outline the three requirements to be in compliance with the Code:
- Basic education: This refers to the examination process7 for your Recognized Actuarial Organization.8
- Continuing education (CE): Once you obtain your credentials, then you must fulfill continuing education requirements. The USQS outlines the number and type of CE hours required in order to attest that you are indeed qualified to perform Actuarial Services the following year.9 You are also responsible for determining what is considered relevant CE and tracking your hours in case your CE log is reviewed.10
- Experience: The USQS requires that you have three years of experience before you are able to perform Actuarial Services in a given area. For example, if you are a new Associate of the Society of Actuaries (ASA) but you only have two years of applicable experience, you wouldn’t be in full compliance to provide Actuarial Services on your own.
This precept also discusses the jurisdiction in which the Actuary renders Actuarial Services. If you are a member of the CIA, but you are practicing in the United States, you must adhere to the USQS. CIA members who practice only in Canada will adhere to their own jurisdictional code. If you are an Actuary living in the U.S. but providing Actuarial Services for a Principal11 in another jurisdiction, you will adhere to that jurisdiction’s code.
Precept 3: Standards of Practice
“An Actuary shall ensure that the Actuarial Services performed by or under the direction of the Actuary satisfy applicable standards of practice.”
Actuarial Standards of Practice (ASOPs)12 are promulgated by the Actuarial Standards Board (ASB) to provide guidance on how to perform specific functions of actuarial work. For example, ASOP 23, “Data Quality,” provides guidance to the Actuary when performing Actuarial Services involving data.13
If you are providing Actuarial Services involving data and do not follow the guidance of ASOP 23, then you may be in violation of Precept 3. If you are working in an area that is new to you, and you aren’t aware of which ASOPs may apply, the AAA has developed applicability guidelines outlining which ASOPs may apply for particular tasks.14 While the applicability guidelines can be helpful, they are not binding and may be incomplete. It is the Actuary’s responsibility to stay up to date on additions and changes to the ASOPs to ensure they are adhering to Precept 3.15
Precepts 4, 5, and 6: Communication and disclosure
“An Actuary who issues an Actuarial Communication16 should take appropriate steps to ensure that the Actuarial Communication is clear and appropriate to the circumstances and its intended audience, and satisfies applicable standards of practice.” (Precept 4)
“An Actuary who issues an Actuarial Communication shall, as appropriate, identify the Principal(s) for whom the Actuarial Communication is issued and describe the capacity in which the Actuary serves.” (Precept 5)
In other words, Precepts 4 and 5 require identification of the responsible Actuary, clarification of the availability of additional supplementary information, and identification of the Principal (for example, company management, client, regulator) when providing Actuarial Services.
“An Actuary shall make appropriate and timely disclosure to a present or prospective Principal of the sources of all direct and indirect material compensation that the Actuary or the Actuary’s firm has received, or may receive, from another party in relation to an assignment for which the Actuary has provided, or will provide, Actuarial Services for that Principal.” (Precept 6)
If you were building a single model to fulfill the needs of multiple clients, and you billed each client 100% of the time charges to build the model without disclosing that they were not the sole Principal, that might be a violation of Precept 6.
Precept 7: Conflict of Interest
“An Actuary shall not knowingly perform Actuarial Services involving an actual or potential conflict of interest unless: a) the Actuary’s ability to act fairly is unimpaired; b) there has been disclosure of the conflict to all present and known prospective Principals whose interests would be affected by the conflict; and c) all such Principals have expressly agreed to the performance of the Actuarial Services by the Actuary.”
If you were providing Actuarial Services for both the buyer and the target during a merger or acquisition, it would need to be disclosed to both parties and express permission would need to be granted. The Actuary would also have to be fair and unbiased when performing these services.
Precept 8: Control of Work Product
“An Actuary who performs Actuarial Services shall take reasonable steps to ensure that such services are not used to mislead other parties.”
For example, if you are providing a range of reserves in your actuarial report with the sole intention of demonstrating the volatility, then it is your responsibility to clearly disclose the purpose of the range to avoid misinterpretation that any value in the range would be appropriate to use.
Another example, recalling Precept 2, is that if you are missing any of the requirements set forth by the USQS (that is, basic education, continuing education, or experience) and are intentionally withholding this information from your Principal, that could potentially mislead the users of your Actuarial Services into believing you are fully qualified to provide the work product.
Precept 9: Confidentiality
“An Actuary shall not disclose to another party any Confidential Information17 unless authorized to do so by the Principal or required to do so by Law.”18
A violation of this precept can arise from purposely sharing Confidential Information, but it could also be from accidental or unintentional means. If you leave your computer unlocked in a public place and an unintended user is able to gather Confidential Information as a result, that may qualify as a violation of Precept 9.
Precept 10: Courtesy and Cooperation
“An Actuary shall perform Actuarial Services with courtesy and professional respect and shall cooperate with others in the Principal’s interest.”
As a professional, this precept should be easy to obey; however, there may be times when it’s uncomfortable to work with others if it is an adversarial circumstance. As an example, if you provided Actuarial Services for Company XYZ in the prior year but you were fired after that assignment, you may still harbor bad feelings about the situation. If the new actuarial firm is reviewing your work and wants to discuss your work product, Precept 10 says that you must be courteous and cooperative.
Another example of a potential violation of this precept is if you continuously ignore a Principal’s call because you know they are upset with the results from your actuarial study, and you don’t want to face them. Not only would that violate Precept 10 but also Precept 1 by not operating with integrity.
Precept 11: Advertising
“An Actuary shall not engage in any advertising or business solicitation activities with respect to Actuarial Services that the Actuary knows or should know are false or misleading.”
If you are a consultant in a business development role, you want to advertise your services. A violation of this precept could come from claiming that you are faster, cheaper, and more adept than a prospective client’s current Actuary. If you haven’t reviewed the current Actuary’s work or aren’t familiar with their timeliness or fee, this is not a claim you can make.
Precept 12: Titles and Designations
“An Actuary shall make use of membership titles and designations of a Recognized Actuarial Organization only in a manner that conforms to the practices authorized by that organization.”
If you have not fulfilled the USQS requirements as a Fellow of the Society of Actuaries (FSA) or aren’t current on your dues, you can’t use the FSA designation. When actuarial candidates find out they have passed their final exam before Associateship, it may be tempting to use that credential immediately; however, it’s important they are approved by their Recognized Actuarial Organization and have express permission before they add it to their signature.
Precepts 13 and 14: Violations of the Code of Professional Conduct
“An Actuary with knowledge of an apparent, unresolved, material violation of the Code by another Actuary should consider discussing the situation with the other Actuary and attempt to resolve the apparent violation. If such discussion is not attempted or is not successful, the Actuary shall disclose such violation to the appropriate counseling and discipline body of the profession, except where the disclosure would be contrary to Law or would divulge Confidential Information.” (Precept 13)
If you were tasked with reviewing another Actuary’s work product, and you found inappropriate assumptions with inadequate documentation that have a substantial impact on the outcome of the analysis, Precept 13 states that you should consider discussing this with the other Actuary. Precept 13 does not say to immediately report it to the ABCD. And even though, similar to Precept 10, this conversation may be uncomfortable, a discussion with the other Actuary may help to clarify their actions.
If you’ve made a reasonable attempt to contact the other Actuary, to no avail, then a discussion with the ABCD may be warranted, keeping in mind that the ABCD is not a disciplinary body,19 but they do offer guidance and confidential counseling.20
“An Actuary shall respond promptly, truthfully, and fully to any request for information by, and cooperate fully with, an appropriate counseling and disciplinary body of the profession in connection with any disciplinary, counseling, or other proceeding of such body relating to the Code. The Actuary’s responsibility to respond shall be subject to applicable restrictions on Confidential Information and those imposed by Law.” (Precept 14)
In the case that the ABCD reaches out to you, it is in your best interest to respond to them in a timely manner and to answer their inquiries to the best of your ability. The ABCD is a body that helps us stay self-regulated by ensuring that we are all exercising skill and care.
What about actuarial candidates?
While actuarial candidates are not subject to the Code, they still have to perform in a way that protects and elevates the reputation of the profession.
The SOA21 and the CAS22 have their own sets of rules that are specific to candidates. There is a lot of overlap with the Code, but some of the rules are more specific to the actions of an actuarial candidate.
Rule 1 of both the SOA Candidate Code of Conduct and the CAS Candidate Code of Ethics aligns with Precept 1: “An actuarial candidate shall act honestly, with courtesy, integrity, and competence, to uphold the reputation of the actuarial profession.” Even though an actuarial candidate doesn’t have the same responsibilities as an Actuary, they have the same expectations of behavior. Other rules listed overlap with Precepts 9, 10, 12, and 14.
A difference between the Code and the rules set forth for candidates is that both organizations include a rule discussing the adherence to the examination discipline policy. It’s important for actuarial candidates to realize that, even though they don’t yet carry the actuarial designation, their actions could prevent them from achieving that goal if they are in violation of their actuarial organization’s rules.
In summary
When I tell people that I’m an Actuary, I am greeted with awe and respect (after the comments about their rising auto rates). That awe and respect is a direct result of how effectively our profession maintains its reputation through following the Code, USQS, and the ASOPs.
With our adherence to the Code, we can continue to foster this respect for generations of actuaries to come.
1 In case you do not have the little blue book, the Code is available here: https://www.actuary.org/content/code-professional-conduct (accessed: June 26, 2023).
2 The five U.S.-based actuarial organizations are: American Academy of Actuaries (AAA), American Society of Pension Professionals & Actuaries (ASPPA), Casualty Actuarial Society (CAS), Conference of Consulting Actuaries (CCA), and Society of Actuaries (SOA). Members of the Canadian Institutes of Actuaries (CIA) who practice in the United States also must comply with the Code.
3 Code of Professional Conduct, page 1.
4 The definition continues with “When the term ‘actuary’ is used without being capitalized, it refers to any individual practicing as an actuary, regardless of organizational membership or classification.”
5 ABCD. 2022 ABCD annual report. Retrieved June 26, 2023, from http://www.abcdboard.org/resources/annual/.
6 The Code defines Actuarial Services as “professional services provided to a Principal by an individual acting in the capacity of an actuary.”
7 The examination process is not the full criteria for meeting the basic education requirement; for additional details, review the USQS.
8 The Code defines a “Recognized Actuarial Organization” as “an organization that has been accepted for full membership in the International Actuarial Association or a standards-setting, counseling, or discipline body to which authority has been delegated by such an organization.”
9 Reading this article may count as professionalism CE for you.
10 All this information, and more, can be found at: https://www.actuary.org/content/us-qualification-standards (accessed: June 26, 2023).
11 The Code defines Principal as “a client or employer of the Actuary.”
12 They can be found at: https://www.actuary.org/content/actuarial-standards-practice-asops (accessed: June 26, 2023).
13 See http://www.actuarialstandardsboard.org/asops/data-quality/ (accessed: June 26, 2023).
14 AAA. Applicability Guidelines for Actuarial Standards of Practice. Retrieved June 26, 2023, from https://www.actuary.org/content/applicability-guidelines-actuarial-standards-practice-0.
15 The AAA also helps with this by periodically updating the ASB Boxscore, detailing the status of the ASOPs in progress, available at: http://www.actuarialstandardsboard.org/boxscore/ (accessed: June 26, 2023).
16 The Code defines Actuarial Communication as “a written, electronic, or oral communication issued by an Actuary with respect to Actuarial Services.”
17 The Code defines “Confidential Information” as “information not in the public domain of which an Actuary becomes aware as a result of providing Actuarial Services to a Principal. It includes information of a proprietary nature and information that is legally restricted from circulation.”
18 The Code defines “Law” as “statutes, regulations, judicial decisions, and other statements having legally binding authority.”
19 The ABCD is the recipient of complaints of violations of the Code, and they conduct investigations; however, the violating member’s Recognized Actuarial Organization is responsible for determining the appropriate discipline.
20 For information on how and when to request guidance from the ABCD, visit: https://www.abcdboard.org/standards/guidance/ (accessed: June 26, 2023).
21 SOA (November 15, 2022). Code of Conduct for Candidates. Retrieved June 26, 2023, from https://www.soa.org/4ae133/globalassets/assets/files/edu/edu-code-cond-candidates.pdf.
22 CAS (January 1, 2008). Casualty Actuarial Society Code of Professional Ethics for Candidates. Retrieved June 26, 2023, from https://www.casact.org/exams-admissions/resources/principles/candidate-code-ethics.