Actuarial projects/consulting engagements do not always end with the issuance of the final report. Actuaries, and the clients who engage them, spend a significant amount of time and energy explaining the actuarial methodologies and calculations contained in an actuarial report such as an actuarial reserve analysis. A company may have to spend significant time facilitating discussions between the actuaries and the company’s auditors during the audit process of the financial statements. This discussion typically includes detailed questions focused on actuarial methodologies, key selections and assumptions and the professional qualifications of the actuary.
Through a series of blogs, SIGMA will address some common questions, requirements and issues based on our previous experience with clients and auditors. This first blog in the series will focus on actuarial qualifications and an actuarial qualification statement.
An actuary that issues a Statement of Actuarial Opinion should meet specific qualification standards. These standards are summarized in a document provided by the American Academy of Actuaries titled “Qualification Standards for Actuaries Issuing Statements of Actuarial Opinions in the United States”. (http://www.actuary.org/qualstandards/qual.pdf). These standards became effective in January 2008. The qualification standard contains both basic education and experience requirements as well as continuing education requirements. The standards state:
To satisfy the General Qualification Standard, before issuing a Statement of Actuarial Opinion, an actuary must meet the following basic education and experience criteria:
Property casualty actuaries are now specifically required to attest to the continuing education requirements of the qualification standard as well. The compliance of a property and casualty actuary may be independently verified at the database located on the Casualty Actuarial Society’s website (www.casact.org) under CE Compliance Status.
An important portion of the qualification standard is Appendix 1 which elaborates on what constitutes an actuarial opinion. Items listed as actuarial opinions include insurance company Statements of Actuarial Opinion, expert testimony, loss reserve opinions, and ratemaking opinions. In other words, there are many analyses and communications that represent actuarial opinions in addition to the formal documents labeled as proscribed Statement of Actuarial Opinions by regulators.
When reviewing an actuarial analysis, most auditors will request confirmation that the actuary is indeed qualified to complete the analysis and issue the actuarial opinion. An actuary should be prepared to demonstrate his/her qualifications for issuing the opinion to the auditor. The actuary should determine this prior to completing an analysis. The standards state that “an actuary must be mindful of the obligation imposed by Precept 2 of the Code of Professional conduct not to perform Actuarial services unless qualified to do so”.
For self-insured companies, pools and captives, the actuarial report (reserve analysis) used to support unpaid retained claim liabilities on the financial statements qualifies as an actuarial opinion. The actuarial report should contain a statement or verbiage that explicitly affirms the actuary’s qualifications. In other words, the actuarial report should have a qualification statement.
A typical qualification statement that we include in our reports is similar to this:
Qualification Statement: I, L. Michelle Bradley, am associated with the firm of SIGMA Actuarial Consulting Group, Inc. I am a member of the American Academy of Actuaries and meet its qualification standards, and I am an Associate of the Casualty Actuarial Society. I was appointed by ABC Company on behalf of XYZ Company to render the opinions contained in this actuarial report.
So before engaging an actuary for an analysis, ensure that the individual is qualified to complete the required analysis.
We welcome your feedback by posting a comment, or contact Jeff at jeff@SIGMAactuary.com or Michelle at mb@SIGMAactuary.com
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© 2012 SIGMA Actuarial Consulting Group, Inc.