AE DISCIPLINE ISSUES

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

3. Introduction Why are we here? • CPC reported reviewing seven complaints against seven individuals related to actuarial evidence for 2007/2008. Discipline Bulletin, Vol. 14, No. 2 (May 2008)

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

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

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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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?