Upon entering into the actuarial profession, you may remember being greeted with an alphabet soup of acronyms: CAS, IBNR, CERA, CIA, UCE, ASOP, MAAA and CCA. By the end of this article, I hope to provide clarity to Future Fellows readers about at least one of these: ASOPs or the Actuarial Standards of Practice. Don’t worry if you don’t know much about them. Several ASOPs are covered on exams, so if you are not familiar with them now, you will be as you progress to Exam 5 and beyond.
ASOPs are the set of standards established by the Actuarial Standards Board (ASB) to help the actuarial profession govern itself professionally. The ASB comprises nine members selected by presidents and presidents-elect of the American Academy of Actuaries (AAA or Academy), the Casualty Actuarial Society (CAS) and the Society of Actuaries (SOA). The ASB is charged with overseeing the process whereby ASOPs are developed and published. The best description of what ASOPs are comes directly from the ASB website: “These ASOPs describe the procedures an actuary should follow when performing actuarial services and identify what the actuary should disclose when communicating the results of those services.”

Defining and Refining ASOPs

ASB’s process for creating or revising ASOPs can take anywhere from several months to a couple of years, depending on the magnitude of the revisions or the development of a new ASOP. The process of revision/development follows this pattern:

• The ASB approves proposals for new or revised standards based on a review of current and emerging practices. A task force is formed to draft the standard.
• An initial draft is prepared. Relevant practice area standing committees, the ASB and the Academy legal counsel review these proposed exposure drafts.
• Upon review and approval of the exposure draft, it is released for review to all members. Anyone interested can submit comments on this draft. Commenters may include individual actuaries, companies, government entities and any other stakeholders who may be impacted by the topic of the draft.
• The task force formed to draft the ASOP reviews all comments and determines what revisions will be made. The comments are summarized and responded to as revisions are prepared. The drafting group includes the rationale for the changes when incorporating relevant comments. The summary and response to comments appear in the appendices of each ASOP.
• Another exposure draft may be issued after this previous step or, if that is not necessary, the final standard is published.

The Importance of ASOPs

ASOPs exist for two broad reasons: (1) To protect you as an actuary, and (2) to protect companies and consumers.

Standards offer protection to an actuary in several ways. First, the ASOPs can help you if you have never done a particular type of project. They provide guidance for organizing and preparing a project. The text of each standard gives insight that can help you not miss something important that should be included. Second, when actuaries follow the ASOPs, their work can be validated and defended in the event of a civil or professional disciplinary action.

Companies and consumers are also protected by the establishment of ASOPs. This is accomplished by designating the appropriate procedures and techniques that define the completeness of the actuarial work product. The Standards can be used, therefore, to evaluate if a report produced by an actuary is following established guidance. Additionally, since ASOPs are maintained and updated regularly, they provide a means for an actuarial practice to stay current with relevant trends within the industry. These elements of the Standards foster trust with the public and provide a basis for discipline in the event that an actuary does not follow the applicable Standards.

Conclusion

The CAS Code of Professional Conduct requires that all members comply with the applicable ASOPs. Familiarize yourself with the Standards online at http://www.actuarialstandardsboard.org/standards-of-practice/ or ask a more seasoned actuary for assistance with applying ASOPs to the work you are performing. This benefits you and maintains the well-being of the entire actuarial profession. You have a part to play in upholding the reputation of your fellow actuaries!

Helpful link: The AAA has created an “Applicability Guidelines” Excel file that can serve to assist actuarial professionals as to which ASOPs might be helpful on common assignments. Download it at https://www.actuary.org/sites/default/files/files/Applicability_Guidelines.xls.

Note: While the ASOPs apply to actuarial work in the U.S., other jurisdictions have similar standards of practice. If you are not in the U.S., we encourage you to seek out the standards that are applicable to your work.