Course on Professionalism

1. Course on Professionalism ASOP 1 – Introductory Actuarial Standard of Practice (ASOP)

2. Outline • Role of Actuarial Standards Board (ASB) • Format of the ASOPs • Common ASOP Terms • Purpose of the ASOPs • Applying the ASOPs

3. Role of Actuarial Standards Board (ASB) • Responsible for promulgating ASOPs • Has exclusive authority to determine ASOP needs and content • All actuaries required to observe ASOPs

4. Format of ASOPs • Components of an ASOP: • Transmittal memorandum • The ASOP itself (4 sections) • One or more supporting appendices • ASOP Sections: • Purpose, scope, cross references and effective date • Definitions and discussion of special terms • Analysis of issues and recommended practices • Communications and disclosures • Transmittal letter and appendices are not binding but may be useful in interpreting the standard

5. Common ASOP Terms • ASOPs include a list of definitions for certain terms used in the ASOP • Various commonly-used words, which are not defined in specific ASOPs, are defined in ASOP 1

6. Common ASOP Terms • Must/Should – used throughout the ASOPs to delineate the responsibilities of the actuary • “Must” means that the ASB does not anticipate that the actuary will have any reasonable alternative but to follow a particular course of action • “Should” indicates appropriate practice for an actuary • Failure to follow a “must” or “should” directive is a deviation from the ASOPs and requires documentation (See ASOP 41, Actuarial Communications, for further guidance)

7. Common ASOP Terms • May – indicates that the course of action described is reasonable and appropriate in many circumstances • Does not indicate that the course of action is appropriate in all circumstances, nor does it imply that alternate courses of action are wrong • Material – an item is material if its omission or misstatement could influence a decision of an intended user • ASOP guidance only applies to material items

8. Purpose of ASOPs • Identify what the actuary should consider, do, document, and disclose when rendering actuarial services • Deviation from one or more provisions of an ASOP should not, in and of itself, be presumed to be malpractice • Actuaries may reasonably deviate from the guidance of the ASOPs

9. Applying ASOPs • ASOPs are principles-based, rather than rules-based, and don’t dictate every step in an assignment nor mandate a particular outcome • Actuaries should take a good faith approach in complying with the ASOPs • ASOPs do not mandate a single approach, but rather provide guidance • Emphasize process over outcome – actuaries can reasonably disagree

10. Applying ASOPs • ASOPs should not be interpreted as having applicability beyond the stated scope and purpose • It is the responsibility of the actuary to determine which ASOPs apply to the task at hand • Most 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 ASOPs • In such cases, the requirements of the law supersede the ASOP guidance

11. Question #1 • Which 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.

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

13. CONGRATULATIONS You have successfully completed this session on ASOP 1