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Actuarial Malpractice: How Bad Things Happen to Good Actuaries Casualty Actuarial Society Disney World - June 19, 2007

Actuarial Malpractice: How Bad Things Happen to Good Actuaries Casualty Actuarial Society Disney World - June 19, 2007. Ronald M. Lepinskas Lord, Bissell & Brook 111 South Wacker Drive Chicago, Illinois (312) 443-0475 rlepinskas@lordbissell.com. Why Fear The Courts?. Years to Resolve

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Actuarial Malpractice: How Bad Things Happen to Good Actuaries Casualty Actuarial Society Disney World - June 19, 2007

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  1. Actuarial Malpractice: How Bad Things Happen to Good ActuariesCasualty Actuarial Society Disney World - June 19, 2007 Ronald M. Lepinskas Lord, Bissell & Brook 111 South Wacker Drive Chicago, Illinois (312) 443-0475 rlepinskas@lordbissell.com

  2. Why Fear The Courts? • Years to Resolve • Immediate Dismissal, Summary Judgment, Trial • Expensive, Embarrassing, Emotional • Justice or Extortion? • They Can’t Handle the Truth!

  3. Could I Really Be Sued? • Fraud • Intentional, Material Misrepresentation • “Upon information & belief, [your name] helped conceal” • Negligent Misrepresentation • Negligent, Material Misrepresentation, Duty • Lay Ignorance: “What’s a Reserve?” • Conspiracy / Aiding & Abetting • Breach of Engagement Agreement • Embezzlement / Conversion

  4. Unfairly, You May Become: • An auditor / fraud detector • But ASOP 23 (Data Quality): “This standard does not recommend that the actuary audit data.” • A lawyer • But ASOP 34 (Plan Benefits in DR Actions): actuaries “should avoid the unauthorized practice of law” • A member of management

  5. Ken Lay, Thanks for the Memories • 50 lawsuits reported: 1971 - 2001 • More since then • S&P Report • Casualty Actuaries have “an abysmal track record” of “signing off on reserves that turn out to be wildly inaccurate”; they are guilty of either “naiveté or knavery.” • “In the post-Enron era, big-dog advisors should pay when things go wrong….”

  6. Red Flags • Financial trouble • Unsophisticated / litigious • Changing actuaries / auditors • Promises / pressure • “We’ve sped up paying claims” • “We’ve taken steps which will lower ALAE” • “We’ve re-underwritten our book; our new business is better” • “We need your opinion right now; we’ll get you data later”

  7. In Hindsight, All Is Clear • Teetering Company • Acquisitions, Accounting Gimmickry, Aggressive Reinsurance, Reserves On Low End of Range • Excuses, Excuses, Excuses • Turnover, Computer Problems, “Misplaced” Records • Politics / Pushy Management

  8. Lessons from the Courtroom • Dumb “Helpful” Letter to Client • Wrongly-Worded Bills • Implying False Precision • Point Estimates • Failing to Caveat • Reliance • Unwritten Regulatory “Waivers”

  9. Inoculate Yourself • Client Screening • Document Work & Management Reps • Don’t Be Rushed • Don’t Be Unorthodox • Avoid “Harmless” Conflict of Interest • Seek Effective Peer Review

  10. You Will Be Judged By • Your Words • Your Document Gaps • Your Drafts • Your Decision Whether to Go To Auditor, Audit Comm., Board, DOI • Your Appearance of Independence • Your Policies & Manuals

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