Note: This document is no longer in effect.
`Interpretative Opinion No. 3 was repealed in 2002; It was replaced by ASOP No. 41,
`Actuarial Communications. Interpretative Opinion No. 4 was repealed in 2001.
`
`
`
`INTERPRETATIVE OPINION 3:
`PROFESSIONAL
`COMMUNICATIONS OF ACTUARIES
`
`and
`
`
`
`
`
`INTERPRETATIVE OPINION 4:
`ACTUARIAL
` PRINCIPLES AND PRACTICES
`
`
`
`Adopted 1970-1982 by the
`American Academy of Actuaries
`
`
`
`Republished 1992 by the
`Actuarial Standards Board
`
`
`
`(Doc. No. 036)
`
`Liberty Mutual Exhibit 1023
`Liberty Mutual v. Progressive
`CBM2012-00002
`Page 00001
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`Page 00002
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`Members of Actuarial Organizations Governed by the Code of Professional
`Conduct and the Standards of Practice of the Actuarial Standards Board
`
`Actuarial Standards Board (ASB)
`
`Republication of Interpretative Opinions 3 and 4
`
`April 1992
`
`
`
`TO:
`
`
`
`
`FROM:
`
`SUBJ:
`
`
`
`The Guides and Interpretative Opinions as to Professional Conduct have in large part been
`replaced by the Code of Professional Conduct, which took effect January 1, 1992, except for
`Interpretative Opinions 3 and 4. These two Opinions were left out of the new Code because they
`were considered to deal with matters of professional practice more than professional conduct.
`
`Because of the important guidance the two Opinions offer to actuaries, and because a number of
`standards of practice make reference to the, the board has decided that they should stay in print
`unless and until replaced by other standards. Accordingly, they are republished in this booklet,
`and should be placed in the Appendixes section of the actuarial standards handbook.
`
`
`
`Actuarial Standards Board
`
`Jack M. Turnquist, Chairperson
`
`
`Edward E. Burrows
`Gary Corbett
`
`Willard A. Hartman
`James C. Hickman
`
`
`
`
`
`
`Frederick W. Kilbourne
`Richard S. Robertson
`Harry L. Sutton, Jr.
`P. Adger Williams
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`
`
`
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`ii
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`Page 00003
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`INTERPRETATIVE OPINION 3: PROFESSIONAL
`COMMUNICATIONS OF ACTUARIES
`
`(Adopted 1970; Revised 1981)
`
`INTRODUCTION
`
`This Opinion applies to all written communications by actuaries on actuarial subjects and, unless
`clearly inapplicable, to oral communications as well.
`
`
`OPINION
`
`
`(a)
`
`
`Communications.
`
`Important Kinds of Communications. Several kinds of actuarial communications
`are of such importance as to warrant specific mention:
`
`(1)
`
`
`
`(i)
`
`(ii)
`
`(iii)
`
`Statement of Actuarial Opinion. A statement of actuarial opinion is a
`formal statement of
`the actuary’s professional opinion on a defined
`subject. It outlines the scope of the work but normally does not include
`descriptive details. The actuary
`takes responsibility for
`the opinion
`expressed, and must stand ready to answer for it.
`
`Actuarial Report. An actuarial report is a document, or other presentation,
`prepared as a formal means of conveying the actuary’s professional
`conclusions and
`recommendations,
`to
`record and communicate
`the
`methods and procedures, and to ensure that the parties addressed are aware
`of the significance of the actuary’s opinion or findings. An actuarial
`report customarily should describe or identify the data, assumptions, and
`methods used with sufficient clarity that another actuary practicing in the
`same field could make an objective appraisal of the reasonableness and
`validity of the report.
`
`Statement of Actuarial Review. A statement of actuarial review is a
`formally communicated appraisal of actuarial work done by another
`person. The actuary who signs a statement of actuarial review for public
`use or reliance must be free of any material financial or organizational
`relationship with any person whose work is being appraised or with that
`person’s client, employer, or other affiliate. A statement of actuarial
`review which is not to be communicated to third parties by the client or
`
`
`
`
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`1
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`Page 00004
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`the employer, and which within its own text is identified as such, is not a
`“statement of actuarial review for public use or reliance,” and financial or
`organizational independence is not required.
`
`(iv)
`
`Required Actuarial Document. A required actuarial document is an
`actuarial communication of which the formal content is prescribed by law
`or regulation. A required actuarial document should meet the guidelines
`for an actuarial communication as well as those standards required by law
`or regulation.
`
`Forms and Content. The form and content of any actuarial communication
`should meet the needs of the particular circumstances, taking into account the
`knowledge and understanding of the users and the actuary’s relationship to the
`users.
`
`Non-Independence. Any actuarial communication made by an actuary who is not
`financially or organizationally independent concerning any matter related to the
`subject of the communication should disclose any pertinent relationship which is
`not apparent.
`
`Reliance on Another. An actuary who makes an actuarial communication
`assumes
`responsibility
`for
`it except
`to
`the extent
`the actuary disclaims
`responsibility by stating reliance on another person. Reliance on another person
`means making use of that person’s work without assuming responsibility therefor.
`A communication making use of any such reliance should define the extent of
`reliance.
`
`Responsibility for Written Actuarial Communication. Any written actuarial
`communication must be signed with the name of the actuary who is responsible
`for it. The name of an organization with which the actuary is affiliated may be
`incorporated into the signature, but the actuary’s responsibilities and those of the
`organization are not affected by the form of the signature.
`
`(2)
`
`(3)
`
`(4)
`
`(5)
`
`Direct Users. A client or employer is the direct user of the actuary’s service,
`distinguished from an indirect user in that the direct user as the opportunity to
`select the actuary and is in a position to communicate directly with the actuary
`about qualifications, work, and recommendations.
`
`Indirect Users. Information prepared by an actuary may be used by another
`person in a way which may influence the actions of a third party. If such
`information is to be conveyed to any such indirect users by someone other than
`
`
`
`
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`2
`
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`
`
`(b)
`
`
`Users.
`
`(1)
`
`
`(2)
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`Page 00005
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`(3)
`
`(4)
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`risk of misquotation,
`the
`recognize
`should
`actuary
`the
`actuary,
`the
`misinterpretation, or other misuse of its actuarial aspects. The actuary should take
`all reasonable steps to ensure that the actuarial material is presented fairly, that the
`presentation as a whole is clear in its actuarial aspects and that the actuary is
`identified as the source of the actuarial aspects and as the individual who is
`available to answer questions.
`
`General Responsibility to Users. An actuary has a responsibility to direct users,
`to whom
`the actuarial communications are generally directed. An actuary’s
`obligation to observe standards of professional conduct is the same for indirect
`users as for direct users and whether acting as a consultant or as an employee.
`
`Protecting the Interests of Indirect Users. The actuary does not normally have an
`obligation to communicate with any person other than the client or employer. If
`aware of any significant conflict between the interests of indirect users and the
`interests of the client or employer, the actuary should advise the client or
`employer of
`the conflict and should
`include appropriate qualifications or
`disclosures in any related actuarial communication.
`
`
`(c) Miscellaneous.
`
`
`(1)
`
`Conflict with Professional Judgment. If the service requested by a client or
`employer produces a
`result which conflicts materially with
`the actuary’s
`professional judgment, the actuary should advise the client or employer of the
`conflict and should include appropriate qualifications or disclosures in any related
`actuarial communication.
`
`(2)
`
`(3)
`
`(4)
`
`Advocacy. When an actuary acts, or may seem to be acting, as advocate for a
`client or employer, the nature of that relationship should be disclosed to directly
`interested parties. The actuary should support the position of the client or
`employer only
`to
`the extent
`the actuary
`is satisfied
`that
`that position
`is
`professionally supportable, recognizing that honest differences of opinion may
`exist. The actuary’s professional judgment should not be subordinated to the
`judgment of others.
`
`Responsibility Not Dependent on Fee. The waiving of a fee for professional
`services, either partially or totally, does not relieve the actuary of the need to
`observe professional standards.
`
`Documentation. Records and other appropriate documentation of the actuary’s
`work should be maintained by the actuary and retained for a reasonable period of
`time. Documentation should be sufficiently complete so that another actuary
`practicing the same field could follow the work.
`
`
`
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`3
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`Page 00006
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`(5)
`
`(6)
`
`Availability of Documentation.
` Documentation should be available to the
`actuary’s client or employer, and it should be made available to other persons
`when the client or employer so requests, assuming appropriate compensation and
`provided such availability is to otherwise improper. In the absence of specific
`agreement between an actuary and
`the client or employer, ownership of
`documentation is normally established by law.
`
`Obligation Imposed by Law. Laws and regulations may establish restraints and
`obligations on the part of the actuary toward designated publics. The requirements
`of laws and regulations are binding; but when such requirements are in conflict
`with professional standards, they should be recognized as flowing directly from
`the laws and regulations and not from professional considerations.
`
`
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`4
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`Page 00007
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`INTERPRETATIVE OPINION 4: ACTUARIAL
`PRINCIPLES AND PRACTICES
`
`(Adopted 1982) 1
`
`INTRODUCTION
`
`A requirement common to all actuarial procedures is that assumptions and methods be selected
`and applied with integrity, informed judgment and perspective in relation to the circumstances
`applicable to the particular situation and the purpose for which the results are intended.
`Assumptions and methods may appropriately be different in calculations related to the same
`period or moment in time but intended for different purposes. It therefore would be inappropriate
`to prescribe inflexible guides for the performance of the actuary’s work.
`
`On the other hand, there is merit in adopting statements of principles relating to the appropriate
`application of actuarial science in its various aspects. The making and the observing of such
`statements tends to minimize both the possibility of misunderstanding or misinterpretation by
`those who rely on the actuary’s work and the likelihood of need for disciplinary action under the
`Academy’s Bylaws.
`
`The Opinion addresses the question of soundness or principles and practices used by the actuary
`as distinct from “actuarial soundness” of a specific financing arrangement.
` “Actuarial
`soundness” is neither an absolute nor a unique concept, but must be considered in relation to the
`problem at hand and the accuracy with which future experience can be predicted. Therefore,
`general opinions as to “actuarial soundness” should be avoided, wherever possible, and an
`opinion as to the adequacy of a given financing arrangement with respect to specifically defined
`objectives, assumptions or requirements should be substituted, where appropriate, or otherwise
`be appended.
`
`
`
`
`
`
`1 Revised in 1990 to reflect the creation of the Actuarial Standards Board.
`
`
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`5
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`Page 00008
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`

`
`OPINION
`
`(a)
`
`
`Generally Accepted Actuarial Principles and Practices.
`
`
`(b)
`
`
`(c)
`
`Guide 4(b) requires the actuary to “exercise due diligence to ensure. . .that the methods
`employed are consistent with the sound actuarial principles and practices established by
`precedents or common usage within the profession. . .” Such “sound actuarial principles
`and practices” constitute Generally Accepted Actuarial Principles and Practices.
`
`Sources of Generally Accepted Actuarial Principles and Practices.
`
`Sources of Generally Accepted Actuarial Principles and Practices emerge from the
`utilization and adoption of concepts described in actuarial literature. Such literature
`includes, but
`is not
`limited
`to,
`the Actuarial standards and Actuarial Compliance
`Guidelines adopted by
`the Actuarial Standards Board,
`the Recommendations and
`Interpretations published under the auspices of the American Academy of Actuaries2; the
`professional
`journals of recognized professional actuarial organizations (including
`the
`Statements of Principles promulgated by the Society of Actuaries and the Casualty
`Actuarial Society); recognized actuarial textbooks and study materials; and applicable
`provisions of
`law and regulations; and may
`include standard
`textbooks or other
`professional publications in related fields such as mathematics, statistics, accounting,
`economics and law.
`
`Standards of Practice and Compliance Guidelines.
`
`An actuary working in a specialized field should take into consideration any published
`Standard of Practice or Compliance Guideline of the Actuarial Standards Board.
`
`An actuary who uses principles or practices which differ materially from any published
`Standard of Practice or Compliance Guideline must be prepared to support the particular
`use of such principles or practices and should include in an actuarial communication
`appropriate and explicit information with respect to such principles and practices.
`
`An actuary may wish to take into consideration an exposure draft of other version of a
`proposed Standard of Practice of Compliance Guideline. Any such proposed Standard of
`Practice or Compliance Guideline is subject to withdrawal or to revision prior to
`adoption. If an actuary uses any such proposal it should be identified clearly as such, and
`measures should be taken to assure that the user appreciates the possible consequences of
`using a proposal that is subject to withdrawal or revision.
`
`
`
`
`2 In July 1988, the Actuarial Standards Board became the authority establishing actuarial standards of practice. The
`AAA Recommendations and Interpretations were determined by the ASB to be actuarial standards of practice, to
`remain in force until replaced by new standards adopted by the ASB.
`
`
`
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`6
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`Page 00009
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`When dealing with a specific situation not covered by a published Standard of Practice or
`Compliance Guideline, the actuary should be aware of relevant precedent and generally
`available literature in deciding what constitutes Generally Accepted Actuarial Principles
`and Practices.
`
`Professional Judgment Prevails.
`
`In all cases the professional judgment of the actuary should prevail.
`
`
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`7
`
`
`(d)
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`Page 00010