Presentation Title

Course on ProfessionalismASOP 1 Introductory Actuarial Standard of Practice (ASOP)

1OutlineRole of Actuarial Standards Board (ASB)Format of the ASOPsCommon ASOP TermsPurpose of the ASOPsApplying the ASOPs

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

Format of ASOPsComponents of an ASOP:Transmittal memorandumThe ASOP itself (4 sections)One or more supporting appendicesASOP Sections:Purpose, scope, cross references and effective dateDefinitions and discussion of special termsAnalysis of issues and recommended practicesCommunications and disclosuresTransmittal letter and appendices are not binding but may be useful in interpreting the standard

Each ASOP document has the following components a transmittal memorandum, the ASOP itself, and one or more supporting appendices.

The ASOP itself contains the following sections the purpose, scope, and effective date of the standard; definitions and discussion of special terms; analysis of issues and recommended practices; and communications and disclosures.

4Common ASOP TermsASOPs include a list of definitions for certain terms used in the ASOPVarious commonly-used words, which are not defined in specific ASOPs, are defined in ASOP 1

ASOPs include a list of definitions for certain terms used in the ASOP. Those definitions apply only to the specific ASOP in which they are defined.

ASOP 1 defines and describes certain terms that are commonly used in the ASOPs but are not specifically defined in them.

5Common ASOP TermsMust/Should used throughout the ASOPs to delineate the responsibilities of the actuaryMust means that the ASB does not anticipate that the actuary will have any reasonable alternative but to follow a particular course of actionShould indicates appropriate practice for an actuaryFailure to follow a must or should directive is a deviation from the ASOPs and requires documentation (See ASOP 41, Actuarial Communications, for further guidance)

Should is commonly used throughout the ASOPs, whereas must is seldom used. Should is used in situations where, practically speaking, the actuary has a choice and the ASOP is providing guidance on the recommended course of action. For example, ASOP 23 includes the phrase the actuary should consider reviewing the current data for consistency with the data used in the prior analysis. Practically speaking, the actuary could not review the current data for consistency with the prior data, but ASOP 23 advises that it is appropriate for the actuary to do so.

The actuary is permitted to deviate from the guidance of an ASOP, as long as the actuary properly documents the reason for the deviation.

6Common ASOP TermsMay indicates that the course of action described is reasonable and appropriate in many circumstancesDoes not indicate that the course of action is appropriate in all circumstances, nor does it imply that alternate courses of action are wrongMaterial an item is material if its omission or misstatement could influence a decision of an intended userASOP guidance only applies to material items

Purpose of ASOPsIdentify what the actuary should consider, do, document, and disclose when rendering actuarial servicesDeviation from one or more provisions of an ASOP should not, in and of itself, be presumed to be malpracticeActuaries may reasonably deviate from the guidance of the ASOPs

Applying ASOPsASOPs are principles-based, rather than rules-based, and dont dictate every step in an assignment nor mandate a particular outcomeActuaries should take a good faith approach in complying with the ASOPsASOPs do not mandate a single approach, but rather provide guidanceEmphasize process over outcome actuaries can reasonably disagree

Actuaries should make a good faith effort to comply with the ASOPs, and should not take a strained interpretation of the ASOP provisions in order to best fit their needs. Put simply, if a particular action feels wrong, it probably is.

9Applying ASOPsASOPs should not be interpreted as having applicability beyond the stated scope and purposeIt is the responsibility of the actuary to determine which ASOPs apply to the task at handMost 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 ASOPsIn such cases, the requirements of the law supersede the ASOP guidance

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

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

CONGRATULATIONS

You have successfully completed this session on ASOP 113