Are You an Expert?
WhAT ARE YouR RESPoNSIbILITIES for complying with the
Code of Professional Conduct when you offer expert testimony about
another actuary’s work?
Several precepts may apply when
an actuary provides expert testimony—
particularly Precept 13, but also Precept
1, Precept 3, Precept 8, and Precept 9.
There are also Actuarial Standards of
Practice (ASOP) that may apply, including ASOP No. 17, Expert Testimony by
Actuaries, and ASOP No. 41, Actuarial
Communications.
Precept 13 requires, in part, that an
actuary who knows of an apparent, un-
resolved, material violation of the Code
of Professional Conduct by another ac-
tuary should consider discussing and
resolving the violation with the other
actuary. If no effort is made, or the dis-
cussion isn’t successful, the actuary then
should report the violation to an appro-
priate counseling and discipline body
of the profession—such as the Actuari-
al Board for Counseling and Discipline
(ABCD). The only exception is when
such a disclosure would be contrary to
law or would reveal confidential infor-
mation. Annotation 13-2 in the precept
further states that an actuary isn’t ex-
pected to discuss a violation with the
other actuary if either is prohibited by
law from doing so or if he or she is in an
adversarial situation with the other actu-
ary (which is often the situation in expert
testimony cases).
An Illustrative Scenario
Consider Company A, which three
years ago acquired the long-term care
insurance (LTC) line of business from
Company B. Company B had used actuary Jethro to develop and opine on
the actuarial reserves and to develop
an actuarial appraisal value of its LTC
business. Three years after it acquired
Company B’s LTC business, Company
A experienced extensive claim losses on
that business, particularly on claims incurred before the date of acquisition.
Company A believes that Company B
misrepresented its information, provided inaccurate data on claims reported,
and had Jethro use aggressive actuarial
assumptions in developing the claim
reserves and valuing the block of LTC
business. As a result, Company A sued
Company B for recovery of those losses
and retained actuary Ziva to review the
calculations performed by Jethro.
Ziva’s contract with her principal
contained a confidentiality agreement
that precluded her from discussing any
aspect of the case with other parties. The
contract didn’t include any confidentiality requirements extending beyond the
case’s final settlement date. Ziva’s principal and the principal’s attorney, as part of
their legal strategy, strongly encouraged
her to accuse Jethro of violating the Code
of Professional Conduct, since it could
enhance the principal’s legal position.
Ziva stated in her report that—in her
opinion—Jethro had made major mistakes in his analysis of the data and in
setting actuarial assumptions to establish
reserves on open claims. She also stated
that he had used unsupported aggressive
discount rates and recovery rates that
resulted in a material understatement
in open claim reserves. As a result, she
wrote, he had materially overstated the
value of Company B’s LTC business.
In her report and subsequent deposition and testimony, she further stated
that—in her opinion—Jethro violated
several precepts of the Code of Professional Conduct and didn’t comply with
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