2. COURSE ON PROFESSIONALISM ASOP #17 - Expert Testimony by Actuaries

3. 2 Purpose and Scope Focus is on preparation and delivery of sound expert testimony by actuaries Focus is on preparation and delivery of sound expert testimony by actuaries Applies to actuaries testifying as actuarial experts Applies to actuaries testifying as actuarial experts Nothing in this standard is intended to discourage reasonable differences of actuarial opinion or to inhibit responsible creativity in advancing the practice of actuarial science Nothing in this standard is intended to discourage reasonable differences of actuarial opinion or to inhibit responsible creativity in advancing the practice of actuarial science Effective July 15, 2002 with updated deviation language effective May 1, 2011 Effective July 15, 2002 with updated deviation language effective May 1, 2011

4. 3 Definitions Expert - qualified by “knowledge, skill, experience, training or education” to render an opinion Expert - qualified by “knowledge, skill, experience, training or education” to render an opinion Actuarial Opinion - conclusion drawn by actuary from actuarial knowledge or from application of one or more actuarial methods to a body of data Actuarial Opinion - conclusion drawn by actuary from actuarial knowledge or from application of one or more actuarial methods to a body of data Testimony - communication of an actuarial opinion Testimony - communication of an actuarial opinion Oral or written Oral or written Direct or responsive Direct or responsive Formal or informal Formal or informal

5. 4 Standards and Disclosures Actuary should be knowledgeable about this standard, other relevant standards, Qualification Standards for Prescribed Statement of Actuarial Opinion, and the Code of Professional Conduct Actuary should be knowledgeable about this standard, other relevant standards, Qualification Standards for Prescribed Statement of Actuarial Opinion, and the Code of Professional Conduct Conflicts of interest – address real or apparent conflicts of interest in accordance with Precept 7 of Code of Professional Code Conflicts of interest – address real or apparent conflicts of interest in accordance with Precept 7 of Code of Professional Code Advocacy – may act as an advocate, but must use reasonable assumptions and appropriate methods Advocacy – may act as an advocate, but must use reasonable assumptions and appropriate methods

6. 5 Identification and Compliance Identify Client (or Principal) - even though client may have representative (attorney), ultimate responsibility is to client Identify Client (or Principal) - even though client may have representative (attorney), ultimate responsibility is to client Comply with laws and regulations Comply with laws and regulations If believe law conflicts with sound actuarial principles, disclose conflict but follow law If believe law conflicts with sound actuarial principles, disclose conflict but follow law

7. 6 Question #1 The definition of “Testimony” includes the following: The definition of “Testimony” includes the following:  A. Expert Opinions given in a formal setting.  B. Expert Opinions given in an informal setting.  C. Expert Opinions provided through written testimony.  D. All of the above.

8. 7 Answer #1 This is an incorrect answer: This is an incorrect answer:  A. Expert Opinion given in a formal setting. The definition of “Testimony” includes an expert opinion given in a formal setting, however, this is not the most appropriate answer to this question. The definition of “Testimony” includes an expert opinion given in a formal setting, however, this is not the most appropriate answer to this question. Press to retake Question #1

9. 8 Answer #1 This is an incorrect answer: This is an incorrect answer:  B. Expert Opinion given in an informal setting The definition of “Testimony” includes an expert opinion given in an informal setting, but this is not the most appropriate answer to this question. Press to retake Question #1

10. 9 Answer #1 This is an incorrect answer: This is an incorrect answer:  C. Expert Opinions provided through written testimony. The definition of “Testimony” includes an expert opinion provided through written testimony, but this is not the most appropriate answer to this question. The definition of “Testimony” includes an expert opinion provided through written testimony, but this is not the most appropriate answer to this question. Press to retake Question #1

11. 10 Answer #1 The definition of “Testimony” includes all of the following:: The definition of “Testimony” includes all of the following::  A. Expert opinions given in a formal setting.  B. Expert opinions given in an informal setting.  C. Expert opinions provided in written testimony.

12. 11 Assumptions & Methods Unless disclosed otherwise, actuary is responsible for methodology and assumptions Unless disclosed otherwise, actuary is responsible for methodology and assumptions Be prepared to conduct additional calculations in certain forums Be prepared to conduct additional calculations in certain forums If asked to use other assumptions - make clear results don’t represent actuary’s own expert opinion If asked to use other assumptions - make clear results don’t represent actuary’s own expert opinion

13. 12 Communication Keep background of audience in mind when testifying Keep background of audience in mind when testifying Explain technical terminology and concepts so understood by audience Explain technical terminology and concepts so understood by audience It is beneficial for the actuary to provide expert testimony as clearly as possible It is beneficial for the actuary to provide expert testimony as clearly as possible

14. 13 Cross Examination Respond truthfully but need not volunteer information not in best interest of client Respond truthfully but need not volunteer information not in best interest of client Hypothetical questions Hypothetical questions The actuary may refuse to answer hypothetical questions based on unreasonable assumptions, subject to the constraints of the forum The actuary may refuse to answer hypothetical questions based on unreasonable assumptions, subject to the constraints of the forum

15. 14 Other Issues Testimony on opposing actuary’s testimony Testimony on opposing actuary’s testimony Testify objectively, focusing on reasonableness not solely on whether it agrees or disagrees with actuary’s own testimony Testify objectively, focusing on reasonableness not solely on whether it agrees or disagrees with actuary’s own testimony Consistency with actuary’s prior testimony Consistency with actuary’s prior testimony  Be prepared to explain any differences in methodology or assumptions Errors Errors  Disclose material errors in testimony as soon as possible

16. 15 Disclosure of Deviations In addition to those discussed earlier, the actuary should also disclose the following, as applicable In addition to those discussed earlier, the actuary should also disclose the following, as applicable If any material assumption or method was prescribed by applicable law (4.2 of ASOP 41) If any material assumption or method was prescribed by applicable law (4.2 of ASOP 41) If disclaiming responsibility for any material assumption or method selected by a party other than the actuary (4.3 of ASOP 41) If disclaiming responsibility for any material assumption or method selected by a party other than the actuary (4.3 of ASOP 41) Deviation from this ASOP (4.4 of ASOP 41) Deviation from this ASOP (4.4 of ASOP 41)

17. 16 Practical Examples An actuary may be asked to give expert testimony concerning a broad range of issues such as: An actuary may be asked to give expert testimony concerning a broad range of issues such as: Adequacy or appropriateness of reserves, premium rates, pricing or underwriting procedures, or provisions for administrative costs Adequacy or appropriateness of reserves, premium rates, pricing or underwriting procedures, or provisions for administrative costs Cost impact of risk classification systems, tort liability decisions, or legislative/regulatory proposals Cost impact of risk classification systems, tort liability decisions, or legislative/regulatory proposals Relationships between risk and return on investments Relationships between risk and return on investments Value of an insurance company or other entity Value of an insurance company or other entity

18. 17 Question #2 True or False: If necessary to best serve as an advocate for the position of their Principal, an actuary may choose not to follow the Code of Professional Conduct True or False: If necessary to best serve as an advocate for the position of their Principal, an actuary may choose not to follow the Code of Professional Conduct True True False False

19. 18 Answer #2 True is an Incorrect Answer True is an Incorrect Answer Press to retake Question #2

20. 19 Answer #2 The correct answer is False: The correct answer is False: Although the actuary can act as an advocate, the actuary must follow the Code of Professional Conduct Although the actuary can act as an advocate, the actuary must follow the Code of Professional Conduct

21. 20 Practical Examples Actuarial expert testimony may be given in many forums including, but not limited to, the following: Actuarial expert testimony may be given in many forums including, but not limited to, the following: Rate Hearings (filer, regulator, or consumer advocate) Rate Hearings (filer, regulator, or consumer advocate) Civil Litigation (both executive and legislative branch proceedings) Civil Litigation (both executive and legislative branch proceedings) Criminal Trials Criminal Trials

22. 21 Rate Hearing Advantages include general understanding of actuarial issues and reliance on pre-filed testimony Advantages include general understanding of actuarial issues and reliance on pre-filed testimony Disadvantages include the fact that advocacy often trumps expertise and that there could be political issues surrounding the hearing Disadvantages include the fact that advocacy often trumps expertise and that there could be political issues surrounding the hearing It is recommended to know the filing, the history, the environment and not to overstate precision It is recommended to know the filing, the history, the environment and not to overstate precision The classic example, “What is the proper profit provision and how should it be reflected in the rates?” The classic example, “What is the proper profit provision and how should it be reflected in the rates?”

23. 22 Civil Litigation Advantages include adequate time for preparation and tremendous testimony through deposition. There is also less advocacy than rate hearings Advantages include adequate time for preparation and tremendous testimony through deposition. There is also less advocacy than rate hearings Disadvantages include the fact that there is little understanding of actuarial issues, that the jury can lack focus and education, and that cross-examination can be brutal Disadvantages include the fact that there is little understanding of actuarial issues, that the jury can lack focus and education, and that cross-examination can be brutal It is recommended to have through knowledge of the subject matter, triple-check all calculations, be consistent with prior testimony, and document everything It is recommended to have through knowledge of the subject matter, triple-check all calculations, be consistent with prior testimony, and document everything The classic example, “Should the reserving actuary have anticipated all or part of the adverse development?” The classic example, “Should the reserving actuary have anticipated all or part of the adverse development?”

24. 23 Criminal Trial Advantages include the fact that this is an interesting application of actuarial science and a chance to meet a new group of people Advantages include the fact that this is an interesting application of actuarial science and a chance to meet a new group of people Disadvantages include the fact that there is a lot of pressure and threats can be real or implied Disadvantages include the fact that there is a lot of pressure and threats can be real or implied It is recommended to avoid advocacy at all costs, to keep it simple, and to act as though you were the expert for both sides It is recommended to avoid advocacy at all costs, to keep it simple, and to act as though you were the expert for both sides The classic example, “What are the chances that four homes owned by a single individual over a nine year period would be substantially destroyed by fire through random occurrence?” The classic example, “What are the chances that four homes owned by a single individual over a nine year period would be substantially destroyed by fire through random occurrence?”

25. 24 Question #3 True or False: When law conflicts with sound Actuarial Principles, the law should be followed with disclosure of the appropriate actuarial principles. True or False: When law conflicts with sound Actuarial Principles, the law should be followed with disclosure of the appropriate actuarial principles. True True False False

26. 25 Answer #3 False is an Incorrect Answer False is an Incorrect Answer When law conflicts with sound Actuarial Principles, the law should be followed with disclosure of the appropriate actuarial principles. When law conflicts with sound Actuarial Principles, the law should be followed with disclosure of the appropriate actuarial principles. Press to retake Question #3

27. 26 Answer #3 The correct answer is True: The correct answer is True: When law conflicts with sound Actuarial Principles, the law should be followed with disclosure of the appropriate actuarial principles. When law conflicts with sound Actuarial Principles, the law should be followed with disclosure of the appropriate actuarial principles.

28. 27 Conclusion Actuaries benefit the public when they apply their professional skills in a manner that promotes general welfare, and they enhance relationships with their professional peers when they present their work fairly and give credit where appropriate. Actuaries benefit the public when they apply their professional skills in a manner that promotes general welfare, and they enhance relationships with their professional peers when they present their work fairly and give credit where appropriate.