Actuary as “Fact” & “Expert” Witness Actuarial Society of Greater New York

1. Actuary as “Fact” & “Expert” WitnessActuarial Society of Greater New York Steven J. Levine Larry Bell Selig Ehrlich Michael L. Frank New York City April 1, 2008

2. Overview • Introduction of Speakers • Introduction to Fact Witness • Introduction to Expert Witness • Arbitrations • Preparation • Examples • Open Discussion/Q&A

3. Biography – Selig Ehrlich • Credentials – FSA, MAAA • Prior Chief Actuary - AXA Equitable and Travelers • Founded his own consulting practice in 2004. • Focuses on providing strategic advice, as well as financial reporting, expense management, mergers & acquisitions, and product development issues.  • Selig has served as a witness in several reinsurance disputes – providing depositions and testimony.

4. Biography – Larry Bell • Lawrence L. Bell, JD, LTM, CLU, ChFC, CFP, AEP • Teaches business and estate planning to attorneys, accountants, financial planners and insurance professionals. • Qualified expert and testified on business practices, valuations, taxes patents and benefits. • Works with profit non-profit and government organizations in strategic planning, business continuity and benefit practices on a regional, national and international basis. • Tax Bar liaison to the Internal Revenue Service for the MD Bar and FEPTA for 10 years. • Nominated for Taxpayer Advocate Chair of the Ex Org Focus Group-I RS • Patent holder for COLI, GASB, FASB, IASB and OPEB solutions • He has authored articles and Decision Trees on COLI Best Practices, 409A , and Benefit Planning. • He speaks nationally on all of the topics he has written about.

5. Biography – Steven J. Levine • COPA . FCA . EA . MAAA . MSPA • Over 30 years in ERISA plan consulting • Consultant & advisor in hundreds of change of control transactions • Expert witness preparation/testimony • Litigation/audit support in benefits area • Fact witness preparation/testimony

6. Biography – Michael L. Frank • President & Actuary, Aquarius Capital • 20 Years Experience: Insurance, Reinsurance & Employee/Retiree Benefits • Executive: Insurance Companies, Reinsurers, HMOs & Consulting Firms • Actuarial, Underwriting, Brokering, Consulting, Reinsurance, M&A • Actuarial Credentials/Organizations: ASA, MAAA, FCA, IAA, IACA • Actuarial Society of Greater New York (ASNY) • Appointed Chairperson for Continuing Education • Society of Actuaries Section Councils • Active: Reinsurance, Entrepreneurial • Retired: Actuary of the Future • Licensed life, accident and health broker (25 states) • Licensed reinsurance intermediary & managing general underwriter • Listed Arbitrator for Reinsurance Association of America (RAA) • Associate, American College of Healthcare Executives (ACHE) • Other: Speak at Industry Meetings, Publish Articles, Industry Committees • Experience: Testified as both “Fact” and “Expert” Witness • Website: www.AquariusCapital.com

7. Why are actuaries involved as a witness?

8. Reasons for Witness Work • Lawsuit • Arbitration • Dispute • Insolvency • Third Party Opinion • Tax Court

9. Disputes • Insurance Entities vs Insurance Entities • Insurance Entities vs Non-Insurance Entities • Non-Insurance Entities vs Non-Insurance Entities • Participant claims in ERISA plans • Trustee and plan sponsor disputes • Marital disputes • Tax Court

10. Types of Actuaries that are involved • Health Insurance • Life Insurance • Retirement & Pensions • Reinsurance • Insurance Company • Consultants • Did we forget anyone?

11. How are actuaries involved? • Fact Witness • Expert Witness • Litigation Support

12. What are the qualifications for being a “Fact” Witness?

13. Answer! No qualification required except “being there”

14. Fact Witness – Being Deposed by Opposing Counsel • Answering only the questions asked • Who gets to see it - audience • Not an education exercise • I don’t know vs. I don’t recall • Recognizing the limits of what you REALLY know • Opposing Counsel’s right NOT to be misled • Tips/Things to expect

15. Testifying at Arbitration • Consistency with deposition • Telling company story • Differences between panel of neutrals vs. judge or jury • Level of understanding of parties

16. Qualifications as an Expert(Critical Questions for Phase 1) • What are the qualifications for being a “Expert” Witness? • Am I the right person to be an expert witness? • Is this the right case for me to be an Expert Witness? • Are you comfortable with public speaking? • How do you handle stressful encounters? • Can you convince people that you are an Expert? CONGRATS! YOU MADE IT THROUGH PHASE 1!

17. Qualifications as an Expert(Critical Questions for Phase 2) • What educational and credentials are required? • Technical Requirements • What experience do you have in the area? • Can your argument be refuted? • Are you comfortable with that? • Again, am I really an expert in this specific area?

18. Qualifications as an Expert(Technical Requirements) • Work Experience • Experience on the subject matter • Previous expert witness experience • Other expertise • Previous Employment • Importance of Titles (e.g., Chief Actuary) • Credentials as an actuary – FSA vs ASA • Does this matter?

19. Qualifications as an Expert(Technical Requirements - Continued) • Industry community service • Publish articles • Speaking engagements • Industry committees • Keep up your CE requirements • Other Designations – Help or Hurt Situation • Conflicts of Interest

20. Qualifications as an Expert(Phase 3 – Do you have any “smoking” guns?) • Can your past haunt you? • Old opinions that refute this opinion? • Conflicts of interest? • Items that will disqualify you at testimony? Personal or business? • What will people find out when “google-ing” you Last but not least…

21. Qualifications as an Expert(Phase 4 – “The Moral Dilemma”) • Do I believe it is the right cause to defend? • Are you willing to “throw your hat into the ring” • Are you OK having it be your opinion? • Is it worth the pain? This will not be fun. YOU BETTER FIGURE THIS OUT BEFORE TAKING THE JOB!!!

22. Arbitration - Who are the players? • Lawyers • Clients • Judges/Arbitration Panel • Witnesses (Fact vs Expert) • Court/Arbitration Recorder

23. Arbitration Process • Initial Dispute & Legal Involvement • Data/Discovery Process • Internal Planning Meetings • Development of Analysis (Outside Expert Witness) • Depositions • Re-evaluation • Arbitration Hearings • Settlement Discussions

24. What role can “Expert” Witness provide during the data discovery process?

25. What should I do as part of preparation process as a witness?

26. Preparing for the Deposition Process • Take a breath – Let your attorney interrupt • Opposition Attorney • Ask Attorney to explain or repeat • it’s okay to say I do not understand • Answer question –let your Attorney follow up for more • Stay rested –take breaks • Taping vs. transcripts

27. Sample Arbitration Clause(Reinsurance Agreement) • As a condition precedent to any right of action hereunder, any dispute or difference between the Ceding Company and the Reinsurer relating to the interpretation or performance of this Agreement, including its formation or validity, or any transaction under this Agreement, whether arising before or after termination, shall be submitted to arbitration. • Arbitration shall be the method of dispute resolution, regardless of the insolvency of either party, unless the conservator, receiver, liquidator or statutory successor is specifically exempted from arbitration proceeding by applicable state law of the insolvency. • Arbitration shall be initiated by the delivery of written notice of demand for arbitration by one party to another. Such written notice shall contain a brief statement of the issue(s), the failure on behalf of the parties to reach amicable agreement and the date of demand for arbitration. NOTE: ILLUSTRATION PURPOSES ONLY

28. Sample Arbitration Clause(Continued) • The arbitrators and umpire shall be present or former disinterested officers of reinsurance or insurance companies other than the two parties to the Agreement or any company owned by, or affiliated with, either party. Each party shall appoint an individual as arbitrator and the two so appointed shall then appoint the umpire. If either party refuses or neglects to appoint an arbitrator within thirty (30) days, the other party may appoint the second arbitrator. • If the two arbitrators do not agree on an umpire within sixty (60) days of the appointment of the second appointed arbitrator, each of the two arbitrators shall nominate three individuals. Each arbitrator shall then decline two of the nominations presented by the other arbitrator. The umpire shall be chosen from the remaining two nominations by drawing lots. • The decision in writing of the majority of the arbitration panel shall be final and binding upon the parties. Judgment may be entered upon the final decision of the arbitration panel in any court having jurisdiction. • THESE CLAUSES GO BEYOND REINSURANCE DEALS!!!! • COMMON IN OTHER AGREEMENTS NOTE: ILLUSTRATION PURPOSES ONLY

29. Other Things to Keep in Mind in Arbitrations • Appeals -2nd bite of the apple • Costs • To late by the time you are called • Understanding the Arbitrators/umpire knowledge level on the subject matter being disputed

30. Challenges of Expert Witness Work • The initial engagement/presentation • Being impartial regardless of who is paying the bill • Sticking to the facts • Educate the “court” on a subject • Addressing conflicts of interest • Prior Work by Expert – Does opinion conflict? • Is “Expert” also a “Fact” Witness?

31. Challenges …….. (Con’t) • Understanding the “Big Picture” • Knowledge of the topic • Ability to articulate • Integrity • Availability of Time

32. Tips for Testimony • Listening is Important • Preparation is Key • This is a not a memory test • Pace yourself • Get a good night sleep if possible • The process is not fun.

33. Skills of an Actuary • Integrity • Knowledge • Precision • Thoroughness • Completeness • These are strengths and perceived weaknesses!

34. Is Actuarial Science a Science? How does it apply in the legal system?

35. Actuary as an Expert • Reserve/Liability Valuations • Premium Adequacy • Solvency Reviews • Experience Rating • Risk Transfer • Valuing impact of disputes/damages • Economic valuations/life expectancies

36. Actuary as an Expert • ERISA claims – participant/trustee/sponsor • QDROS • Actuarial malpractice • Improper allocations • Issues re: regulators DOL.IRS.PBGC • Tax court • Union / collectively bargained situations • Reports vs testimony

37. What might be in an Expert Report? • Introduction • List Key Parties in Case • Documents/Information Reviewed • Statement of Facts • Process for Developing Opinion • Supporting Facts/Analysis • Executive Summary/Conclusion • Disclosure (ASOP #17) • Supporting Exhibits

38. Reminders • Job of the counsel is to help his or her client • It is difficult to know who is your friend • Do you feel prepped enough for testimony? • Is your counsel prepped enough for your testimony? • Someone should cover your back • Potential for stressful interchange • Some of the cast of characters are out to attack your credentials, your methods, your efforts, your opinions, and your heart

39. Resources to Know • Actuarial standards of Practice (ASOPs) • Know these – well this is your “bible” • Today: There are 44 of them – Know which apply • Find them at the following address: http://www.actuarialstandardsboard.org/asops.asp • Know the standards, the exceptions, the theory, the practical application(s) • Know that they are “safe harbors”, not recipes especially based on the facts

40. Code of Professional Conduct • Revised Code of Professional Conduct took effect 1/1/2001. • The code identifies the professional and ethical standards required of actuaries who belong to the Academy. • Identical codes have been adopted by the Society of Actuaries, the American Society of Pension Professionals and Actuaries, the Casualty Actuarial Society, and the Conference of Consulting Actuaries. • 14 Precepts • http://www.actuary.org/pdf/prof/code_of_conduct.pdf SUGGESTION: Re-read this before accepting the project.

41. Know the Code • Precept 1 Professional Integrity • Precept 2 Qualification Standards • Precept 3 Standards of Practice • Precepts 4-6 Communication & Disclosure • Precept 7 Conflict of Interest • Precept 8 Control of Work • Precept 9 Confidentiality • Precept 10 Courtesy & Cooperation • Precept 11 Advertising • Precept 12 Titles & Designations • Precepts 13-14 Violations of Code of Professional Conduct

42. How do I make money? Who is paying me?

43. Pricing an Engagement • Anticipating project workload • May be tricky • It will impact other client work (plan accordingly) • What do I charge? Premium for deposition ? • How paid? Who pays? When paid? • Contract/Service Agreement • Will outcome of case impact whether you get paid? • Will entity be around to pay you? • Hold harmless and indemnification • Budgeting for other expenses (e.g., travel)

44. What was learned from Expert Witness Work? • Develop better work products • More accurate and consistent work • Peer reviews • Obtain a different perspective of client projects • Better understanding of client’s use of final product • Become more of a student of the professional • Additional review of Actuarial Standards of Practice • Additional review of Code of Professional Conduct • ABCD Board can be a resource for challenging issues!

45. Open Discussion

46. Thank you Steven J. Levine sjlevine@bestweb.net Larry Bell larrybell@theuniquesolution.com Selig Ehrlich sefsallc@optonline.net Michael L. Frank michael.frank@aquariuscapital.com