The following blog is the summary of a Pinnacle APEX Webinar from December 2024

The Actuarial Standards Board’s (ASB) Actuarial Standards of Practice (ASOPs) play a central role in helping actuaries produce consistent, reliable and high-quality work. The ASB updates the ASOPs regularly to ensure the standards (and the profession) are keeping pace with industry developments, regulatory changes and emerging best practices.

This blog summarizes our Pinnacle APEX Webinar from December 2024. For that APEX, we explored a number of updates and changes to several ASOPs—Nos. 20, 29 and 36 notably—and discussed ASOP best practices that actuaries can apply to ensure the quality of the services they provide.

Updates to ASOPs Nos. 20, 29 and 36

ASOP No. 36 (Statements of Actuarial Opinion Regarding Property/Casualty Loss and Loss Adjustment Expense Reserves), is the standard that provides guidance to actuaries when issuing statements of actuarial opinion (SAOs) under certain circumstances. For the uninitiated, the SAO is an official statement from a qualified actuary that represents to the adequacy of an insurance company's reserves.

The ASB’s recent updates to ASOP No. 36 have expanded the standard’s scope to include a wider range of reserves, beyond property and casualty loss and loss adjustment expenses. The standard also added new definitions and removed outdated ones in an attempt to improve the clarity of the ASOP’s language and to be consistent with other ASOPs. One key change to ASOP No. 36 was the addition of a new mandate for actuarial comment on the materiality standard and its basis, intended to ensure a more thorough risk assessment.

On our APEX, we also discussed guidance on using analyses or opinions not produced under the actuary's direction. ASOP No. 36 outlines considerations for evaluating the reliability of external work, including the credentials and expertise of the individual providing the analysis, adherence to industry standard, and the materiality of any differences in conclusions. This ensures actuaries can rely on external analyses while maintaining the integrity of their evaluations.

ASOP No. 29 (Expense Provisions for Prospective Property/Casualty Risk Transfer and Risk Retention) has undergone notable revisions as well. ASOP No. 29 addresses expense provisions for future cost estimates in property and casualty risk transfer or risk retention. These new updates now more clearly differentiate between expense categories. They also clearly stress the importance of suitable models, methods and assumptions. The revisions also offer detailed guidance on considering the timing of residual market expenses to promote more comprehensive cost estimates.

Expense provisions play a crucial role in pricing insurance, and it is essential to ensure expense provisions are suitable and best reflect any expected future environment. That means accounting for future costs related to risk transfer or retention--excluding losses and loss adjustment expenses. Actuaries must use appropriate methods, models and assumptions, which may vary directly with the premium or require different bases such as per policy, per coverage or a percentage of losses.

Another standard that has undergone notable revision is ASOP No. 20 (Discounting of Property/Claim Estimates). ASOP No. 20 provides guidance to actuaries when preforming actuarial services with respect to discounting claim estimates for property and casualty coverages to present values. New updates include language evaluation of the selected discount rate and risk margin considerations with the presence of discounting. They state assumptions and considerations of diverting from a risk-free rate of return to using a portfolio approach when selecting a discount rate. The revisions also offer details on the including of an implicit or explicit risk margin, with options such as an absolute amount, conservative payment patterns, conservative discount rate and other options for actuaries to consider.

Other ASOP Updates, Expense Provisions, and AI in Actuarial Work

As we noted on our APEX in more detail, other ASOPs are currently being updated to align with industry practices and regulatory requirements. ASOP No. 30 (Treatment of Profit and Contingency Provisions and the Cost of Capital) and ASOP No. 12 (Risk Classification) are among those currently undergoing revisions. The ASB has also prepared a second exposure draft for ASOP No. 41 (Actuarial Communications), with comments from industry professionals originally due by February 2025. After our December APEX, the due date was extended a month to March 2025. As with other updates, the objective is to refine standards and provide clearer guidance for actuaries.

Finally, the rise of generative AI in the workplace presents opportunities and challenges for actuaries. In our rapidly changing insurance landscape, understanding the influence of emerging technologies is essential. Tools like ChatGPT and Google's Gemini have become increasingly common, requiring actuaries to understand their implications for their work, including for professionalism and ethics. The profession has worked to stay ahead of these evolving technologies and urges understanding and compliance with recommendations put forth by the actuarial Code of Professional Conduct.

AI in actuarial work should support traditional analysis and decision-making processes. Actuaries need to be aware of potential issues, such as bias in AI outputs and the confidentiality of data used in AI models. Model validation, documentation, and transparency are critical due to the unpredictable nature of AI-generated results. Actuaries should leverage standards like ASOP No. 56 (Modeling) and ASOP No. 23 (Data Quality) to guide their use of AI.

Staying updated on the latest revisions to ASOPs is crucial for actuarial professionals. Adhering to standards and anticipating future changes ensures actuaries deliver high-quality services that meet industry needs in an ethical manner. Regular review of ASOPs, participation in professional development and engagement with the actuarial community are essential for maintaining professional excellence and quality of actuarial work product.

You can hear more by viewing the recording of our APEX webinar here.