A Round Table Discussion on the AAA Qualifications and Continuing Education Standard—Part 2
By Arthur Schwartz
In August 2007, the American Academy of Actuaries (the Academy) approved a new standard on Qualifications and Continuing Education that will have important implications for the actuarial profession in the United States. The standard will be effective beginning January 1, 2008. It is no understatement that this standard represents a historic moment for the actuarial profession in the United States.
This is the second in a series of roundtable discussions that The Actuarial Review will be conducting on this new standard with the view of educating the profession and illuminating the rationale behind the changes. The statements and opinions of the discussion’s participants are their own and are not the official commentary or position of the Committee on Qualifications, the Academy, or the CAS. Your comments on these discussions are welcome and may be sent to The Actuarial Review at firstname.lastname@example.org
Our panel for this second discussion includes:
Mary Frances Miller of Select Actuarial Services in Nashville, Tennessee. Mary Frances is a CAS past president and served on the AAA Committee on Qualifications, which was responsible for drafting the standard.
J. Scott Bradley, president of Quanta Reinsurance Ltd. in Hamilton, Bermuda. Scott served on the CAS Education Policy Committee and now chairs the CAS Task Force on Continuing Education. He brings a unique perspective as a Canadian-born Fellow of the CAS practicing in a foreign jurisdiction.
Bruce Schobel, vice president and actuary with New York Life Insurance Company in New York City. Bruce is president-elect of the SOA and also serves on the Boards of the AAA and the CCA. The CCA, as many know, was in the forefront of the movement toward mandatory CPD.
Mary Downs, general counsel and director of professionalism with the American Academy of Actuaries.
Schwartz: Would it be helpful to have a decision tree or flow chart to help actuaries determine if they’re qualified or not to issue an SAO (statement of actuarial opinion) or a PSAO (prescribed SAO such as for an insurance company) in terms of whether they meet the general or specific qualification standards?
Downs: I don’t have a problem with the idea of a flow chart. However, none of us can speak for the Committee on Qualifications. The chart’s fine as long as it’s as long as it’s understood for what it is—that is, it’s not official.
Schwartz: Referring to Section 2.1, it seems that before an actuary issues an SAO, the actuary must meet the General Qualification requirement and a “relevant education” requirement. The General Qualification requirement refers to someone (including any member of the five United States actuarial organizations or a fully qualified member of another IAA member organization), who has “three years of responsible actuarial experience.” What is considered “responsible actuarial experience”? Also, what does it mean to say the actuary needs “to be knowledgeable...of the law…applicable through examination or documented professional development”?
Miller: “Responsible actuarial experience” is no different from the current AAA requirement of three years’ responsible actuarial work to become a member of the AAA.¹ It’s not making copies at a summer internship, but it also does not have to be at the level of a credentialed actuary.
Schobel: The big difference is that you’re not getting a third party to certify that your experience is responsible actuarial work. It’s self-policed.
Bradley: I would argue that “documented professional development” does not have to be given by an actuarial organization. While sessions at CAS or SOA meetings on tax developments would certainly count as documented professional development, there regularly are tax seminars in Bermuda given by law firms. If you spend a day with them, they’re typically in much more depth than the “concurrent sessions” at an actuarial seminar.
Schobel: One comment that’s been made about the new CPD requirements is that we’re just trying to increase attendance at our meetings. Nothing could be farther from the truth. We don’t care where actuaries go to maintain their knowledge. We simply want them to be, well, more professional!
Bradley: I don’t know of any exams on applicable U.S. or Canadian law other than those of the SOA or CAS.
Miller: If there was a good exam on law from a non-actuarial organization, that would qualify. To give an actuarial example, there’s less and less United States law on the Canadian exam covering law and regulatory matters. A person who passed the Canadian exam could do documented reading or take a seminar or exam covering insurance law in the United States that would be fine, too. Or, if an actuary were also an attorney, they would have knowledge of applicable law from outside the actuarial exams.
Schwartz: Referring to Section 2.1, issuing SAOs requires someone at the highest level of an IAA member organization (such as a Fellow with the CAS) with at least “one year of responsible actuarial experience” (or if not a Fellow, then they need at least three years’ responsible actuarial experience) “under the review of an actuary who was qualified to issue the SAO at the time the review took place under standards in effect at that time.” Please comment on what extent of contact is intended by “under the review.” For example, does this require a supervisory relationship or can the qualified actuary be an actuary consulting for the organization for which the opining actuary is employed? The language appears to require the opining actuary to assess whether the other actuary is qualified to issue an SAO; isn’t that going to be difficult? Also if the standards for issuing opinions change, is it fair that the opining actuary is issuing opinions, perhaps years after the one year (or three years) of review by the qualified actuary?
Miller: Addressing the last question first, you don’t ever lose your basic qualification.
Bradley: Plus you’ve got to have documented professional development to show you’re staying on top of things.
Schobel: If you’re working in an area, and you’re not qualified to issue SAOs, there has to be someone else, probably in the same organization (though they can be elsewhere) who’s reviewing your work. That’s the “supervisory relationship” we’re talking about.
Bradley: Somebody doing technical work like spreadsheets may, to an outside observer, be doing responsible actuarial work and may, to that observer, be qualified as an actuary, even though they wouldn’t necessarily meet the true qualifications.
Schobel: If you’re doing actuarial work and people are relying on it, then it has to pass through the hands of a qualified actuary. That’s the kind of review relationship we’re talking about.
Miller: That person doing the review doesn’t have to be from the same employer. What if you’re an Associate and nobody ever looks at your work? You’re not going to be able to issue SAOs. You’re going to have to find an actuary to look at your work. Of course you could simply get your Fellowship. Otherwise, if you’re the only actuary for an organization, then you have to get some periodic outside review. It’s possible to obtain this outside review, if you don’t work for a qualified actuary, but it’s going to require some significant effort.
Schwartz: The qualified actuary could be a consultant?
Miller: Sure, if an actuary doesn’t yet meet the qualification standard and is going to be the only actuary at an employer, the actuary should notify management that they are not going to be considered qualified and that they are going to need the employer to have their work reviewed by a qualified actuary. Downs: What may be more helpful for your readers is to focus on the general concept rather than the specific relationship between the opining actuary and the reviewing actuary. The general concept is making sure that your work is reviewed by a qualified actuary who takes responsibility for it.
Bradley: Getting back to Mary Frances’ example, if you’re a student, then you’re not a full member of an IAA organization, so this section does not apply to you.
Miller: My example is assuming the student is going to become a full member of an IAA organization. If I were that student, I would tell my employer, “Until I become an Associate, the work I do for you won’t be the work of a qualified actuary. And I still won’t be qualified until my work has been reviewed.”
Bradley: There are lots of people, who sign opinions for captive insurers. They’re bright people often doing good work but they’ve never passed an exam.
Schwartz: Under certain circumstances they would be considered qualified?
Bradley: Yes, although it would have to be very limited circumstances such as for a captive in certain jurisdictions. (As an aside, this is not the case in Bermuda.)
Miller: But under the profession’s qualification standards, such a person would not be considered qualified, even if they are legally permitted to sign opinions. So far as the standards changing, once you meet basic education that’s it. You do have to keep up with continuing education. Otherwise if the standard changed then no one would be considered qualified!
Bradley: There’s material on the current exams that wasn’t there when we went through the exam system.
Schobel: Take financial economics for example!
Schwartz: Referring to Section 2.1, the “relevant education” section places emphasis on being qualified in a specialty track. The SOA currently offers five specialty tracks while the CAS does not offer any specialty tracks. In your opinion, will this section influence the CAS to consider adding several specialty tracks? Why or why not? What areas might those tracks cover?
Miller: There’s no real effect of this. It’s just trying to give you some guidance in case you’re considering changing practice areas. Even if you’re a Fellow you can’t jump into a new field and automatically be considered qualified.
Schobel: If the CAS were to carve up its universe into separate tracks that would make it harder for CAS members to be qualified. My experience is in track A, and now I’m going to practice in track C.
Miller: The CAS had talked about offering some options towards the end of Fellowship though I don’t know where that discussion has gone, but the kind of options that have been discussed would not limit a new CAS Fellow’s ability to provide actuarial services in any area of property/casualty work.
Schwartz: Let’s consider things from the SOA perspective. If I’m going through the SOA exams and I specialize in a track of “retirement benefits,” and I’m now working for a life and health company with no retirement benefits work. Then….
Schobel: Before issuing any SAOs, you would have to get one year’s experience in the new area if you’re a Fellow.
Miller: If you’re an Associate, you would need three years of experience in the new field.
Bradley: Changing the perspective back to the CAS, if I’m an FCAS and go work for a life insurance company, and I put in my one year of responsible actuarial work, then it would seem that I’m qualified to issue SAOs.
Miller: You do need that one year and you might qualify. It’s up to you to make that determination of whether you are qualified or not. The actuary who succeeded me at American States Insurance Company was an FSA. After a single year he was very qualified to do an awful lot of property/casualty ratemaking work. Was he qualified to do everything in property/casualty? No, but he was certainly qualified to issue statements of actuarial opinion in the property/casualty field. And, he did!
Schwartz: We covered that question real well.
Miller: Even if you’re a Fellow, if you didn’t study it, then you’re not going to be ready on day one. However we don’t want to make it impossible to change fields. We tried to strike a balance.
Schwartz: In this respect, the revised AAA standard represents a historic moment for the actuarial profession in North America. Previously, if you were an FSA and you now wanted to work in property/casualty, you had to go ahead and take the CAS exams, and vice versa.
Miller: Actually that would be true only if you wanted membership in the CAS. You could go ahead and practice in the property/casualty field. That’s always been true, and certainly people have done it but without any guidance; now our revised standard requires them to get some continuing education and experience. Simply working in the other field of practice wouldn’t get you qualified to sign the NAIC Annual Statement blank. However, you could certainly do work as an actuary. If you wanted to sign the NAIC opinion for your company, though, then you would have to go through the Casualty Practice Council.
Schwartz: Referring to Section 2.2.7, under “Other Activities,” what qualifies as “actuarial literature” or “papers…on relevant technical or professional topics?” For example, would “actuarial literature” include only those texts written by actuaries? Or can it include texts written by non-actuaries on issues such as insurance law, risk management, enterprise risk management, economics, accounting, statistical modeling, or game theory? What would not qualify?
Schobel: It can certainly include papers written by non-actuaries. These appear in actuarial journals all the time.
Miller: If it’s relevant, use it.
Bradley: Meetings with your organizations’ legal, underwriting, claims, or tax department can be relevant.
Schobel: Again, it’s self-policed.
Schwartz: Referring to Section 2.2.9, if an hour is defined as fifty minutes, and a continuing education activity lasts for 90 minutes; would that count as continuing education of 1.5 hours or 1.8 hours?
Miller: We actually got feedback that record keeping would be more difficult if it were one hour. Most seminar sessions end at fifty minutes.
Schobel:The ninety minute session counts as 1.8 hours.
Schwartz: Referring to Section 2.2.9, and to Appendix 5, are the “hours spent on general business courses and educational materials” that are limited to 3 hours per year, being defined to include the required 3 hours per year of “general business skills”? Do these hours include the requirement of three hours of “professionalism”?
Schobel: The short answer is no; these two areas, “general business skills” and “professionalism” are actually quite distinct. We were trying to limit the time on general business courses. Instead, we want actuaries to bone up on their actuarial knowledge, so we put an upper bound on how much “general business” education would count toward the requirement. On “professionalism” there is a minimum number of hours, with no upper bound; so they are quite different requirements.
Schwartz: What are general business skills?
Schobel: Communication, writing, public speaking, making presentations. All the things actuaries are accused of needing!
Schwartz: Referring to Section 3.1.1 (the educational requirements for the specific qualification standard for issuing NAIC property/casualty opinions), it appears that a candidate could skip any exams offered by the SOA or CAS and simply take those exams that directly tested those topics. Why is there no specific requirement of obtaining an ASA or ACAS designation?
Miller:You still have to meet the General Qualification Standard.
Bradley: We come back to the definition of “actuary” that’s buried in the footnote on page one of the revised AAA standard. To do that, to be an “actuary,” as defined there, you need some letters after your name.²
Miller: You also have to meet a legal requirement. The requirements for actuaries who want to sign an NAIC opinion are only changed a little from the current standard. Everyone has to meet expanded continuing education hours, and actuaries who are newly becoming qualified will need to pick up the topic of reinsurance in addition to the other topics that have always been on the list.
Bradley: If you’re an FIA working in the U.S., this section would apply.
Miller: Let’s review briefly, let’s suppose that you’re an FIA and you come to the United States. What do you have to do to sign your property/casualty insurance company’s NAIC reserve opinion? Well you have to either have taken exams on the topics listed there, offered by the CAS or the AAA, or you have to get equivalent education signed off by a qualified actuary. That’s your basic education. In addition the law says the FIA must join the AAA and approach the Casualty Practice Council, must present their credentials, and then obtain permission from the CPC to sign the opinion. It’s not easy.
Schwartz: It’s doable but it’s not easy
Miller: Each year the CPC looks at one to five applications and does not grant all of them.
Bradley: But it is important to remember that the definition of an SAO includes much more than just statutory opinions and reserve blanks.
Schwartz: Thank you for a great discussion!
1 The Academy does not require letters from any actuaries for a candidate to become an Academy member.
2 The text from the revised standard reads: “The word “actuary” as used herein means an actuary who is a member of the Academy, ASPPA, the CAS, the CCA, the SOA, or a member of any actuarial organization that is not U.S.-based but requires its members to meet the Qualification Standards when practicing in the United States.”