1. Course on Professionalism ASOP Presentation

2. 2 Contents Introduction Introduction ASOP Highlights ASOP Highlights ASOP in Asia ASOP in Asia

3. Course on Professionalism ASOP - Introduction

4. 4 Outline Perspectives on Professions Perspectives on Professions Standards of Practice Standards of Practice Background for Standards Background for Standards

5. 5 Perspectives on Professions Essential Characteristic of a Profession Essential Characteristic of a Profession Expertise in area where professional services are performed Expertise in area where professional services are performed Requirements Requirements Setting selective standards for admission Setting selective standards for admission Training for the attainment of professional competence Training for the attainment of professional competence An organization to test such competence An organization to test such competence

6. 6 Perspectives on Professions “I hold every (person) a debtor to his profession, from which as men of course do seek to receive countenance and profit, so ought they of duty to endeavor themselves by way of amends to be a help and ornament thereunto” -- Francis Bacon

7. 7 Perspectives on Professions Regardless of employment status, professionals have a mandate from their profession to act in the public interest. Regardless of employment status, professionals have a mandate from their profession to act in the public interest.

8. 8 Standards of Practice Standards of professional performance and behavior Standards of professional performance and behavior Developed to meet the expectations of users of the professional services Developed to meet the expectations of users of the professional services Provide guidance for Provide guidance for dealing with commonly encountered problems dealing with commonly encountered problems handling new problems & non-routine situations handling new problems & non-routine situations Ensure the high quality of professional services Ensure the high quality of professional services

9. 9 Background of Standards 1954: SOA update of Guides to Professional Conduct (covered only general principles & precepts) 1954: SOA update of Guides to Professional Conduct (covered only general principles & precepts) 1956: Conference of Actuaries in Public Practice: Code of Professional Conduct 1956: Conference of Actuaries in Public Practice: Code of Professional Conduct

10. 10 Background of Standards 1965: AAA formed; issued its own “Code”: 1965: AAA formed; issued its own “Code”: Professional Duty Professional Duty Member’s responsibility to his/her principal Member’s responsibility to his/her principal Relationship with principal Relationship with principal Impartiality & independence Impartiality & independence Advertising, publicity, & relations with other members Advertising, publicity, & relations with other members Remuneration Remuneration Use of titles Use of titles Little direction in “standards of practice” Little direction in “standards of practice”

11. 11 Background of Standards 1970’s: “Standards” start to be developed in response to guides/laws issued by AICPA, NAIC, Federal Government, et al. 1970’s: “Standards” start to be developed in response to guides/laws issued by AICPA, NAIC, Federal Government, et al. Late 70’s: Emergence of the “Valuation Actuary” Late 70’s: Emergence of the “Valuation Actuary” 1985: IASB formed 1985: IASB formed 1988: ASB formed; given sole discretion to promulgate actuarial standards of practice 1988: ASB formed; given sole discretion to promulgate actuarial standards of practice Charge: develop, promulgate standards; continually review them for update needs Charge: develop, promulgate standards; continually review them for update needs

12. 12 Focus of Standards Indicate how fundamental concepts & methodological principles should be applied in a variety of circumstances Indicate how fundamental concepts & methodological principles should be applied in a variety of circumstances Five “Areas of Practice” within ASB, each with its own operating sub-committee, charged with developing & reviewing appropriate ASOP’s: Five “Areas of Practice” within ASB, each with its own operating sub-committee, charged with developing & reviewing appropriate ASOP’s: Casualty Casualty Health Health Life Life Pension Pension General General

13. 13 Format of Standards Preamble Preamble Purpose, scope, effective date of Standard Purpose, scope, effective date of Standard Definitions of special terms Definitions of special terms Background & historical issues Background & historical issues Review of current & alternate practices Review of current & alternate practices Analysis of Issues & Recommended Practices Analysis of Issues & Recommended Practices Communications & Disclosures Communications & Disclosures

14. Course on Professionalism ASOP Highlights

15. 15 Summary of Key ASOPs ASOPs that apply to all practice areas ASOPs that apply to all practice areas 19 Actuarial Appraisals 19 Actuarial Appraisals 23 Data Quality 23 Data Quality 41 Actuarial Communications 41 Actuarial Communications Reserving ASOPs Reserving ASOPs 20 Discounting of Loss Reserves 20 Discounting of Loss Reserves 36 Statement of Actuarial Opinion 36 Statement of Actuarial Opinion 43 Unpaid Claim Estimates 43 Unpaid Claim Estimates

16. Summary of Key ASOPs Ratemaking ASOPs Ratemaking ASOPs 13 Trending Procedures 13 Trending Procedures 29 Expense Provisions 29 Expense Provisions 30 Profit & Contingency Provisions 30 Profit & Contingency Provisions 39 Treatment of Catastrophe Losses 39 Treatment of Catastrophe Losses Other Key ASOPs Other Key ASOPs 12 Risk Classification 12 Risk Classification 17 Expert Testimony 17 Expert Testimony 25 Credibility Procedures 25 Credibility Procedures 38 Models Outside Area of Expertise 38 Models Outside Area of Expertise 16

17. 17 ASOP 19 – Actuarial Appraisals Purpose and Scope Appraisals of Casualty, Health and Life Insurance Businesses Appraisals of Casualty, Health and Life Insurance Businesses Provides guidance to actuaries performing professional services with respect to appraisals of casualty, health and life businesses Provides guidance to actuaries performing professional services with respect to appraisals of casualty, health and life businesses Applies to appraisals performed on an insurance company or HMO, a collection of policies or contracts in-force, a distribution system that sells such policies or contracts. Applies to appraisals performed on an insurance company or HMO, a collection of policies or contracts in-force, a distribution system that sells such policies or contracts. Effective November 1, 2005 for all appraisals initiated on or after that date Effective November 1, 2005 for all appraisals initiated on or after that date

18. 18 ASOP 19 – Actuarial Appraisals Issues and Recommended Practices Setting assumptions (including discount rate) Setting assumptions (including discount rate) Applicability of Appraisal Applicability of Appraisal Treatment of assets Treatment of assets Model validation Model validation Sensitivity testing Sensitivity testing Reliance on Data and Other Information Reliance on Data and Other Information Documentation Documentation

19. 19 ASOP 19 – Actuarial Appraisals Communications & Disclosures Scope of Assignment, principal, intended use Scope of Assignment, principal, intended use Description of entity Description of entity Appraisal value and date Appraisal value and date Methodology, model, validation techniques Methodology, model, validation techniques Level of Capital Level of Capital Assumptions Assumptions Taxes Taxes Sensitivity of value Sensitivity of value Reliance on Others Reliance on Others

20. 20 ASOP 19 – Actuarial Appraisals Communications & Disclosures Variation of Results Variation of Results Appropriate use of “Actuarial Appraisal” Appropriate use of “Actuarial Appraisal” No obligation to communicate with other users No obligation to communicate with other users Deviation from standard Deviation from standard

21. 21 ASOP 23 Data Quality Purpose Data Quality Give guidance in: Selecting data Relying on data supplied by others Reviewing data Using Data Making disclosures with regard to data quality

22. 22 Scope ASOP 23 Data Quality Scope Applies to all areas of practice Applies to all areas of practice Does NOT require audit of data Does NOT require audit of data If standard establishes requirements in addition to those imposed by law, satisfy both If standard establishes requirements in addition to those imposed by law, satisfy both Originally effective 12/31/1993; updated effective for work products started on or after July 1, 2006 Originally effective 12/31/1993; updated effective for work products started on or after July 1, 2006

23. 23 Selection of Data ASOP 23 Data Quality Selection of Data Understand scope and intended use Understand scope and intended use Consider desired and possible alternative data elements Consider desired and possible alternative data elements Data considerations: Data considerations: Appropriate for intended purpose, including whether sufficiently current Appropriate for intended purpose, including whether sufficiently current Reasonableness and comprehensiveness, with particular attention to internal and external consistency Reasonableness and comprehensiveness, with particular attention to internal and external consistency Known, material limitations Known, material limitations Cost and feasibility against benefit of alternatives Cost and feasibility against benefit of alternatives Sampling methods, if used Sampling methods, if used

24. 24 eliance on Data Supplied by Others ASOP 23 Data Quality Reliance on Data Supplied by Others Accuracy and comprehensiveness of data is responsibility of the provider Accuracy and comprehensiveness of data is responsibility of the provider Actuary may rely on data supplied by others but should follow guidance under 3.5: review of data first (new clarification) Actuary may rely on data supplied by others but should follow guidance under 3.5: review of data first (new clarification) Okay, unless material errors or unreliability becomes apparent Okay, unless material errors or unreliability becomes apparent Disclose reliance Disclose reliance

25. 25 Review of Data ASOP 23 Data Quality Review of Data Applies whether the actuary prepared the data or received data from a third party Applies whether the actuary prepared the data or received data from a third party Review for reasonableness and consistency, “unless review is not necessary or is not practical” Review for reasonableness and consistency, “unless review is not necessary or is not practical” Take into account the extent of checking, verification, or auditing already performed, purpose and nature of assignment, and constraints Take into account the extent of checking, verification, or auditing already performed, purpose and nature of assignment, and constraints

26. 26 Use of Data ASOP 23 Data Quality Use of Data Professional judgment prior to use: Will use of imperfect data produce material bias or highly uncertain results? Will use of imperfect data produce material bias or highly uncertain results? Is the data adequate to satisfy analysis purpose? Is the data adequate to satisfy analysis purpose? Can data be corrected or additional data provided? Can data be corrected or additional data provided?

27. 27 Documentation/ Disclosure ASOP 23 Data Quality Documentation/ Disclosure Refer to guidance from ASOP 41: Actuarial Communications Refer to guidance from ASOP 41: Actuarial Communications Include in actuary’s report: Include in actuary’s report: Source(s) of data Source(s) of data Whether or not data reviewed Whether or not data reviewed Process to evaluate data Process to evaluate data Materiality of biases due to imperfect data Materiality of biases due to imperfect data Adjustments or modifications made Adjustments or modifications made Extent of reliance on data supplied by others Extent of reliance on data supplied by others Limitations on use of work product Limitations on use of work product Any unresolved concern about the data Any unresolved concern about the data Conflicts with law or regulations Conflicts with law or regulations

28. 28 ASOP 41 Actuarial Communications Purpose and Scope Actuarial Communications Actuarial Communications Guidance for written, electronic or oral actuarial communications Guidance for written, electronic or oral actuarial communications Applies to all actuarial communications, with some exceptions e.g. testimony Applies to all actuarial communications, with some exceptions e.g. testimony Effective for any actuarial communications dated or occurring on or after July 15, 2002 Effective for any actuarial communications dated or occurring on or after July 15, 2002

29. 29 ASOP 41 Actuarial Communications General Requirements ASOP 41 Actuarial Communications General Requirements Identify Principal for whom findings are made; clearly state scope and any limitations or constraints Identify Principal for whom findings are made; clearly state scope and any limitations or constraints Form and content clear and appropriate to circumstances and audience Form and content clear and appropriate to circumstances and audience Issued in timely manner, identifying responsible actuary Issued in timely manner, identifying responsible actuary Independence and advocacy should be stated Independence and advocacy should be stated Define extent of reliance on others including Principal Define extent of reliance on others including Principal Applied to cumulative communications so that all of the communications, taken together, satisfy this standard even though individually may not Applied to cumulative communications so that all of the communications, taken together, satisfy this standard even though individually may not

30. 30 ASOP 41 Actuarial Communications Requirements for Specific Communication Types Oral communication should not conflict with written or electronic Oral communication should not conflict with written or electronic Significant findings should be in writing or electronic form, actuarial report if appropriate Significant findings should be in writing or electronic form, actuarial report if appropriate Actuarial report should contain data, assumptions and methods to enable another actuary to perform an objective appraisal Actuarial report should contain data, assumptions and methods to enable another actuary to perform an objective appraisal

31. 31 ASOP 41 Actuarial Communications Compliance with Other Standards Other ASOPs may supersede or give additional clarity to this standard Other ASOPs may supersede or give additional clarity to this standard Compliance with law, regulation, or another profession's standards may be sufficient to deem compliance with this standard Compliance with law, regulation, or another profession's standards may be sufficient to deem compliance with this standard

32. 32 ASOP 41 Actuarial Communications Responsibility to Other Users Use of Actuarial Communication By Others – recognize risk of misquotation, misinterpretation. To prevent misuse, ensure communication is clear and presented fairly, may include limits on distribution Use of Actuarial Communication By Others – recognize risk of misquotation, misinterpretation. To prevent misuse, ensure communication is clear and presented fairly, may include limits on distribution No obligation to communicate with any person other than the intended audience No obligation to communicate with any person other than the intended audience

33. 33 ASOP 41 Actuarial Communications Documentation Maintain appropriate documentation of work for a reasonable periods of time Maintain appropriate documentation of work for a reasonable periods of time Identify data, assumptions and methods such that another actuary could evaluate the reasonableness of the work Identify data, assumptions and methods such that another actuary could evaluate the reasonableness of the work

34. 34 ASOP 41 Actuarial Communications Deviation from Standard Must justify any material deviation from standard Must justify any material deviation from standard

35. ASOP 43 Unpaid Claim Estimates Scope Property/Casualty Unpaid Claim Estimates Property/Casualty Unpaid Claim Estimates Applicable when: Applicable when: Estimating unpaid P&C claim liabilities for all classes of entities Estimating unpaid P&C claim liabilities for all classes of entities Developing unpaid claim liabilities for events that have already occurred Developing unpaid claim liabilities for events that have already occurred Communicating actuarial findings in written or electronic form Communicating actuarial findings in written or electronic form Applies only to undiscounted value estimates. See ASOP No. 20 Applies only to undiscounted value estimates. See ASOP No. 20 Applies to unpaid claim estimate portion for PSAO. See ASOP No. 36 Applies to unpaid claim estimate portion for PSAO. See ASOP No. 36

36. ASOP 43 Unpaid Claim Estimates Scope (cont’d.) Does not apply to: Oral communication Oral communication Ratemaking estimates (i.e. future events) Ratemaking estimates (i.e. future events) Actions taken by the user based on results of analysis Actions taken by the user based on results of analysis Estimation of items that may be a function of unpaid claim estimates or claim outcomes Estimation of items that may be a function of unpaid claim estimates or claim outcomes Unpaid claims covered by ASOP No. 5 or ASOP No. 42 Unpaid claims covered by ASOP No. 5 or ASOP No. 42 standard does apply to health benefits associated with state or federal WC statutes and liability policies. standard does apply to health benefits associated with state or federal WC statutes and liability policies.

37. ASOP 43 Unpaid Claim Estimates Required Disclosures Intended Purpose or Use: Intended Purpose or Use: External financial reporting, internal management reporting, appraisals, scenario analyses, etc. External financial reporting, internal management reporting, appraisals, scenario analyses, etc. If multiple uses, should consider conflicts between uses and adjustments to accommodate multiple uses If multiple uses, should consider conflicts between uses and adjustments to accommodate multiple uses Constraints/Limitations (e.g. limited data, staff, time or other resources) Constraints/Limitations (e.g. limited data, staff, time or other resources) If a deeper analysis would produce a materially different result, notify Principal of risk & communicate constraints If a deeper analysis would produce a materially different result, notify Principal of risk & communicate constraints

38. ASOP 43 Unpaid Claim Estimates Required Disclosures (cont’d.) Scope of the Unpaid Claim Estimate Scope of the Unpaid Claim Estimate Claims covered (e.g. line of business, type of loss, accident year, state) Claims covered (e.g. line of business, type of loss, accident year, state) Intended measure of unpaid claim estimate (eg. high estimate, actuarial best estimate) and appropriateness to intended purpose or use Intended measure of unpaid claim estimate (eg. high estimate, actuarial best estimate) and appropriateness to intended purpose or use Gross or net of specific recoverables Gross or net of specific recoverables Collectibility risk – to what extent considered Collectibility risk – to what extent considered Specific types of unpaid claims adjustment expenses included Specific types of unpaid claims adjustment expenses included Any amounts that are discounted Any amounts that are discounted

39. ASOP 43 Unpaid Claim Estimates Required Disclosures (contd.) Significant events, assumptions, or reliances Disclose those that have material impact on estimates Disclose those that have material impact on estimates Disclose assumptions provided by Principal or outside party Disclose assumptions provided by Principal or outside party Additional disclosure if can actuary cannot determine reasonableness Additional disclosure if can actuary cannot determine reasonableness Type of range (if applicable) Examples Examples Range of estimates of the intended measure Range of estimates of the intended measure Confidence level - disclose risks Confidence level - disclose risks Changes in assumptions, procedures, methods, or models if material Applicable if study is an update of prior analysis Applicable if study is an update of prior analysis Discuss reasons for change (not required to quantify) Discuss reasons for change (not required to quantify)

40. ASOP 43 Unpaid Claim Estimates Required Disclosures (contd.) Reliance on Single Method Disclose and discuss when not using multiple methods or models Does not apply when multiple methods used but single method selected Deviation from Standard To comply with applicable laws or for other reasons To comply with applicable laws or for other reasons Other deviation is permitted, but be prepared to justify Other deviation is permitted, but be prepared to justify

41. Course on Professionalism ASOP in Asia

42. 42 ASOPs in Asia China China Hong Kong Hong Kong Singapore Singapore Taiwan Taiwan

43. 43 ASOPs in Asia China – CIRC Regulation No. 13 on Reserving China – CIRC Regulation No. 13 on Reserving Overview Overview Type of Policy Provisions Type of Policy Provisions Methodologies Methodologies Reporting Reporting

44. 44 ASOPs in Asia Hong Kong – Hong Kong Insurance Authority Guidance Note GN9 on Actuarial Review of Insurance Liabilities in respect of Employees’ Compensation and Motor Insurance Businesses Hong Kong – Hong Kong Insurance Authority Guidance Note GN9 on Actuarial Review of Insurance Liabilities in respect of Employees’ Compensation and Motor Insurance Businesses Introduction, Application and Parameters Introduction, Application and Parameters Actuarial Review Report Actuarial Review Report Certification of the Actuarial Opinion Certification of the Actuarial Opinion The Actuary – Qualification The Actuary – Qualification Commencement of the Actuarial Review Requirement Commencement of the Actuarial Review Requirement Submission of the Actuarial Review Report and Certificate Submission of the Actuarial Review Report and Certificate

45. 45 ASOPs in Asia Hong Kong – Actuarial Guidance Note GN4 on Outstanding Claims in General Insurance Note on Professional Practice Hong Kong – Actuarial Guidance Note GN4 on Outstanding Claims in General Insurance Note on Professional Practice Introduction Introduction The Role of the Actuary – Advisor, must have clear agreement The Role of the Actuary – Advisor, must have clear agreement Outstanding Claim Liability – Liabilities, Estimates, Discounting, Uncertainty, Methodology Outstanding Claim Liability – Liabilities, Estimates, Discounting, Uncertainty, Methodology Outstanding Claim Provision Outstanding Claim Provision Reporting Guidelines Reporting Guidelines

46. 46 ASOPs in Asia Singapore – Singapore Actuarial Society Guidance Note G1 for Actuaries investigating Policy Liabilities relating to general insurance business Singapore – Singapore Actuarial Society Guidance Note G1 for Actuaries investigating Policy Liabilities relating to general insurance business Background and Scope Background and Scope Data and information Data and information Assumptions including analysis of experience and reconciliation with previous investigation Assumptions including analysis of experience and reconciliation with previous investigation Methodology including description of case reserving policy, practical considerations for Provisions for Adverse Development Methodology including description of case reserving policy, practical considerations for Provisions for Adverse Development Uncertainty – Treatment and quantification Uncertainty – Treatment and quantification Business Issues – Importance of face-to-face meetings with key personnel Business Issues – Importance of face-to-face meetings with key personnel Reporting – Format, contents and supporting appendices Reporting – Format, contents and supporting appendices

47. 47 ASOPs in Asia Taiwan – Standard of Practices and Statement of Principles are combined in Taiwan. They are based on CAS and AAA’s publications with adjustments for local issues. Taiwan – Standard of Practices and Statement of Principles are combined in Taiwan. They are based on CAS and AAA’s publications with adjustments for local issues. Reserving Reserving Ratemaking Ratemaking Reinsurance – Risk Transfer Testing Reinsurance – Risk Transfer Testing Expense Classification Expense Classification Profit and Contingency load Profit and Contingency load