Actuarial Standard of Practice No. 41 Actuarial Communications Revised Edition Developed by the General Committee of the Actuarial Standards Board Adopted by the Actuarial Standards Board December 2010 (Doc. No. 120) ASOP No. 41—December 2010 T A B L E O F C O N T E N T S Transmittal Memorandum iv STANDARD OF PRACTICE Section 1. Purpose, Scope, Cross References, and Effective Date 1 1.1 Purpose 1 1.2 Scope 1 1.3 Cross References 1 1.4 Effective Date 1 Section 2. Definitions 2 2.1 Actuarial Communication 2 2.2 Actuarial Document 2 2.3 Actuarial Finding 2 2.4 Actuarial Report 2 2.5 Actuarial Services 2 2.6 Deviation 2 2.7 Intended User 2 2.8 Oral Communication 2 2.9 Other User 2 2.10 Principal 2 Section 3. Analysis of Issues and Recommended Practices 3 3.1 Requirements for Actuarial Communications 3 3.1.1 Form and Content 3 3.1.2 Clarity 3 3.1.3 Timing of Communication 3 3.1.4 Identification of Responsible Actuary 3 3.2 Actuarial Report 3 3.3 Specific Circumstances 4 3.4 Disclosures Within an Actuarial Report 4 3.4.1 Uncertainty or Risk 4 3.4.2 Conflict of Interest 4 3.4.3 Reliance on Other Sources for Data and Other Information 4 3.4.4 Responsibility for Assumptions and Methods 4 3.4.5 Information Date of Report 5 3.4.6 Subsequent Events 5 3.5 Explanation of Material Differences 6 3.6 Oral Communications 6 3.7 Responsibility to Other Users 6 3.8 Retention of Other Materials 6 Section 4. Communications and Disclosures 7 ii ASOP No. 41—December 2010 4.1 Disclosures in any Actuarial Communication 7 4.1.1 Identification of Responsible Actuary 7 4.1.2 Identification of Actuarial Documents 7 4.1.3 Disclosures in Actuarial Reports 7 4.2 Certain Assumptions or Methods Prescribed by Law 8 4.3 Responsibility for Assumptions and Methods 8 4.4 Deviation from the Guidance of an ASOP 9 APPENDIXES Appendix 1—Background and Current Practices 10 Background 10 Current Practices 10 Appendix 2—Comments on the Second Exposure Draft and Responses 12 iii ASOP No. 41—December 2010 December 2010 TO: Members of Actuarial Organizations Governed by the Standards of Practice of the Actuarial Standards Board and Other Persons Interested in Actuarial Communications FROM: Actuarial Standards Board (ASB) SUBJ: Actuarial Standard of Practice (ASOP) No. 41 This document contains the final version of the revision of ASOP No. 41, Actuarial Communications. Background The current version of ASOP No. 41 has been in effect for eight years, and applies to all U.S. actuaries in all areas of practice. During that time, the ASB has received comments regarding a lack of clarity in the document and confusion in respect to its wording and structural arrangement. One of the ASB’s priorities is to make sure that all ASOPs are clear and unambiguous. First Exposure Draft In September 2008, the ASB approved the first exposure draft of a revised ASOP No. 41 with a comment deadline of December 31, 2008. Twenty-three comment letters were received. Most had multiple comments, many of which were substantive. The majority of commentators were supportive of the effort to revise this ASOP, and most comments were positive in nature, but some indicated that the first draft needed significant revision. In September 2008, the ASB also adopted “Revision of Deviation Language for Standards and Removal of References to PSAOs from Standards” pending the issuance of ASOP No. 41 as a final revision. Due to the passage of time since that adoption, the ASB will update this document to reflect changes in ASOP No. 41, as well as to update references for other new and revised ASOPs. It is expected that the ASB will adopt this document as a final revision at its March meeting, with an effective date of May 1, 2011, consistent with the effective date of this revised standard. Second Exposure Draft In December 2009, the ASB approved a second exposure draft of a revised ASOP No. 41, reflecting significant modifications of the first draft, with a comment deadline of March 31, 2010. Thirty-seven comment letters were received in response. For a summary of the substantive issues contained in the second exposure draft comment letters and the responses, please see appendix 2. iv ASOP No. 41—December 2010 Changes from Second Exposure Draft The review and revision of the second exposure draft focused on the dominant issue raised in 19 of 37 comment letters; namely, the apparent requirement for an actuary to complete an actuarial report with full disclosures in nearly all circumstances. This was not the intent of the second exposure draft, but the reviewers were sensitive to this possible interpretation. Accordingly, this final version reflects clarification to the guidance within this standard, in particular to recognize that in some internal and informal settings, complete disclosure of all applicable supporting information is neither practical nor necessary. Section 3.3 (formerly section 3.5) has been moved and expanded to provide guidance in these situations. Additional discussion has also been added to appendix 1. In response to other comments some definitions have been added and other clarifying modifications have been made. Summary of Key Changes from Current ASOP 1. The concept of a single formal actuarial report, which is required to contain all necessary disclosures, has been removed. Instead, the concept that communication is an ongoing and interactive process and that an actuarial report with all necessary disclosure elements may comprise several different pieces of communication, perhaps delivered in different forms, has been adopted. The standard directs the actuary to identify all applicable documents whenever multiple documents are used to satisfy all of the disclosure requirements of an actuarial report. 2. Section 3.4.4 makes it clear that the actuary is responsible for all actuarial assumptions and methods utilized in producing the actuarial communication, unless the actuary discloses otherwise. 3. Section 3 has been reorganized. All disclosure requirements have been moved to section 4, while additional guidance relating to disclosures remains in section 3.4. 4. The treatment of deviations from the guidance of any ASOP (including situations where assumptions are not set by the actuary) is also codified in section 4. 5. Reference to Prescribed Statements of Actuarial Opinion (PSAOs) has been removed. 6. The ASB has decided that specifying what material should be retained and for how long is not appropriate for this standard (except as may be provided in section 3.8). The General Committee thanks everyone who took the time to contribute comments and suggestions on both exposure drafts. The ASB voted in December 2010 to adopt this standard. v ASOP No. 41—December 2010 General Committee of the ASB Thomas K. Custis, Chairperson Michael S. Abroe William J. Schreiner Peter Hendee Martin M. Simons Godfrey Perrott Chester J. Szczepanski Actuarial Standards Board Albert J. Beer, Chairperson Alan D. Ford Patricia E. Matson Patrick J. Grannan Robert G. Meilander Stephen G. Kellison James J. Murphy Thomas D. Levy James F. Verlautz The ASB establishes and improves standards of actuarial practice. These ASOPs identify what the actuary should consider, document, and disclose when performing an actuarial assignment. The ASB’s goal is to set standards for appropriate practice for the U.S. vi ASOP No. 41—December 2010 ACTUARIAL STANDARD OF PRACTICE NO. 41 ACTUARIAL COMMUNICATIONS STANDARD OF PRACTICE Section 1. Purpose, Scope, Cross References, and Effective Date 1.1 Purpose—This actuarial standard of practice (ASOP) provides guidance to actuaries with respect to actuarial communications. 1.2 Scope—This standard applies to actuaries issuing actuarial communications within any practice area. This standard does not apply to communications that do not include an actuarial opinion or other actuarial findings (for example, this standard does not apply to brochures, fee quotes, or invoices). This standard provides guidance for preparing actuarial communications, including those that may be required by the Qualification Standards or by other ASOPs. If such other guidance contains communication requirements that are additional to or inconsistent with this standard, the requirements of such other guidance supersede the guidance of this ASOP. However, the guidance in this ASOP applies to the extent it is not inconsistent with such other guidance. Law, regulation, or another profession’s standards may prescribe the form and content of a particular actuarial communication (such as a government form). In such situations, the actuary should comply with the guidance in this standard to the extent not prohibited by applicable law, regulation, or standard. If the actuary departs from the guidance set forth in this standard in order to comply with applicable law (statutes, regulations, and other legally binding authority), or for any other reason, the actuary should refer to section 4 regarding deviation. 1.3 Cross References—When this standard refers to the provisions of other documents, the reference includes the referenced documents as they may be amended or restated in the future, and any successor to them, by whatever name called. If any amended or restated document differs materially from the originally referenced document, the actuary should consider the guidance in this standard to the extent it is applicable and appropriate. 1.4 Effective Date—This standard is effective for actuarial communications issued on or after May 1, 2011. 1 ASOP No. 41—December 2010 Section 2. Definitions The terms below are defined for use in this actuarial standard of practice. 2.1 Actuarial Communication—A written, electronic, or oral communication issued by an actuary with respect to actuarial services. 2.2 Actuarial Document—An actuarial communication in any recorded form (such as paper, e-mail, spreadsheets, presentations, audio or video recordings, web sites, and court or hearing transcripts). Notes taken by someone other than the actuary are not considered actuarial documents. 2.3 Actuarial Finding—The result (including advice, recommendations, opinions, or commentary on another actuary’s work) of actuarial services. 2.4 Actuarial Report—The set of actuarial documents that the actuary determines to be relevant to specific actuarial findings that is available to an intended user. 2.5 Actuarial Services—Professional services provided to a principal by an individual acting in the capacity of an actuary. Such services include the rendering of advice, recommendations, findings, or opinions based upon actuarial considerations. 2.6 Deviation—The act of departing from the guidance of an ASOP. 2.7 Intended User—Any person who the actuary identifies as able to rely on the actuarial findings. 2.8 Oral Communication—An actuarial communication made orally that has not, to the knowledge of the actuary, been recorded or transcribed verbatim. Such an oral communication is an actuarial communication, but is not an actuarial document. 2.9 Other User—Any recipient of an actuarial communication who is not an intended user. 2.10 Principal—A client or employer of the actuary. 2 ASOP No. 41—December 2010 Section 3. Analysis of Issues and Recommended Practices 3.1 Requirements for Actuarial Communications—The performance of a specific actuarial engagement or assignment typically requires significant and ongoing communications between the actuary and the intended users regarding the following: the scope of the requested work; the methods, procedures, assumptions, data, and other information required to complete the work; and the development of the communication of the actuarial findings. 3.1.1 Form and Content—The actuary should take appropriate steps to ensure that the form and content of each actuarial communication are appropriate to the particular circumstances, taking into account the intended users. 3.1.2 Clarity—The actuary should take appropriate steps to ensure that each actuarial communication is clear and uses language appropriate to the particular circumstances, taking into account the intended users. 3.1.3 Timing of Communication—The actuary should issue each actuarial communication within a reasonable time period, unless other arrangements as to timing have been made. In setting the timing of the communication, the needs of the intended users should be considered. 3.1.4 Identification of Responsible Actuary—An actuarial communication should clearly identify the actuary responsible for it. When two or more individuals jointly issue a communication (at least some of which is actuarial in nature), the communication should identify all responsible actuaries, unless the actuaries judge it inappropriate to do so. The name of an organization with which each actuary is affiliated also may be included in the communication, but the actuary’s responsibilities are not affected by such identification. Unless the actuary judges it inappropriate, the actuary issuing an actuarial communication should also indicate the extent to which the actuary is available to provide supplementary information and explanation. 3.2 Actuarial Report—The actuary should complete an actuarial report if the actuary intends the actuarial findings to be relied upon by any intended user. The actuary should consider the needs of the intended user in communicating the actuarial findings in the actuarial report. An actuarial report may comprise one or several documents. The report may be in several different formats (such as formal documents produced on word processing, presentation or publishing software, e-mail, paper, or web sites). Where an actuarial report for a specific intended user comprises multiple documents, the actuary should communicate which documents comprise the report. In the actuarial report, the actuary should state the actuarial findings, and identify the methods, procedures, assumptions, and data used by the actuary with sufficient clarity 3 ASOP No. 41—December 2010 that another actuary qualified in the same practice area could make an objective appraisal of the reasonableness of the actuary’s work as presented in the actuarial report. 3.3 Specific Circumstances—The content of an actuarial report may be constrained by circumstances. The actuary should follow the guidance of this standard to the extent reasonably possible within such constraints. When those constraints exist, it may be appropriate not to include some of the otherwise required content in the actuarial report. However, limiting the content of an actuarial report may not be appropriate if that report or the findings in that report may receive broad distribution. If the actuary believes circumstances are such that including certain content is not necessary or appropriate, the actuary must be prepared to identify such circumstances and justify limiting the content of the actuarial report. 3.4 Disclosures Within an Actuarial Report—Consideration of the items to be disclosed is an important part of the preparation of any actuarial communication. The actuary should review the list of required disclosure items included in section 4 of this ASOP, and in any other relevant ASOP. Further discussion regarding some of these disclosure items follows: 3.4.1 Uncertainty or Risk—The actuary should consider what cautions regardingpossible uncertainty or risk in any results should be included in the actuarial report. 3.4.2 Conflict of Interest—An actuary who is not financially, organizationally, or otherwise independent concerning any matter related to the subject of an actuarial communication should disclose any pertinent information that is not apparent. This includes any situation where the actuary acts, or may appear to be acting, as an advocate. However, applicable financial disclosure is limited in accordance with Precept 6 of the Code of Professional Conduct to sources of material compensation that are known to, or are reasonably ascertainable by, the actuary. 3.4.3 Reliance on Other Sources for Data and Other Information—An actuary who makes an actuarial communication assumes responsibility for it, except to the extent the actuary disclaims responsibility by stating reliance on other sources. Reliance on other sources for data and other information means making use of those sources without assuming responsibility for them. An actuarial communication making use of any such reliance should define the extent of reliance, for example by stating whether or not checks as to reasonableness have been applied. An actuary may rely upon other sources for information, except where limited or prohibited by applicable standards of practice or law or regulation. Further guidance on when such reliance is appropriate, and what the actuary’s responsibilities are when such reliance is stated, is found in ASOP No.23, Data Quality. 3.4.4 Responsibility for Assumptions and Methods—An actuarial communication 4