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The Actuary The magazine of the Institute & Faculty of Actuaries

Archie and the Actuaries’ Code pt 5

This is the fifth of a series of articles where Archie the Actuary acts as our guide through the elements of the Actuaries’ Code. In this article, Archie discusses compliance and what to do when actuaries or others appear to be not following the rules.

Vanessa started as a student at ABC Life a year after Archie and transferred to the non-life division before qualifying. She is currently Head of Non-Life Reserving, directing the estimation and reporting of non-life reserves from around the group. Fred, whom Vanessa and Archie first met when he worked for their auditors, was appointed as Finance Director a year ago.

Normally, Vanessa’s team’s numbers form the basis of the numbers carried in the published accounts. Fred is now proposing a different approach for the mid-year accounts. He has engaged an external actuarial consultancy to assess the reserves and their report recommends a lower reserve. Vanessa has reservations about the external actuaries’ work and is uncomfortable with the direction the mid-year process is taking. She meets Archie for a coffee to discuss her concerns about:
• The quality of the actuarial work
• The propriety of Fred’s behaviour
• The impact on the financial statements
• If Vanessa can, or must, speak up; and to whom

Vanessa tells Archie that the actuarial report was sketchy and that of the few assumptions documented in the report a number were, in her view, unreasonably optimistic. She fears that Fred is deliberately looking to flatter the non-life balance sheet with an eye to divesting the non-life business, or more generally to boost the company’s share price. Archie notes that section 4 of the Actuaries’ Code, Compliance, comes into play here. As Vanessa feels that Fred’s behaviour is improper, she needs to challenge him and if she gets nowhere with Fred then section 4.1 says she needs to speak up and take the matter further up her employer’s hierarchy. Vanessa agrees, but is worried that if she gets no satisfaction from this then section 4.3 will require her to go outside the company to the regulators, if legal protection is available.

Archie suspects that this would be the case if the financial statements are affected, but recommends that Vanessa contact his barrister friend, Ben Blessington, whom he has consulted on the Actuaries’ Code previously. The consulting actuary who signed off the work is a member of the UK Actuarial Profession. Archie thinks Vanessa should challenge the actuary about the work and, if she does not receive a satisfactory reply, must report the consulting actuary’s work to the Profession, in line with section 4.4 of the Code. Vanessa is uncomfortable with the idea of actuaries sneaking on each other. Archie replies that it would not be in the public interest for us to close ranks to protect other actuaries and that our clients, and the general public, expect and deserve better than that.

For previous Archie articles visit:
Pt 1 http://www.the-actuary.org.uk/872861
Pt 2 http://www.the-actuary.org.uk/873808
Pt 3 http://www.the-actuary.org.uk/874610
Pt 4 http://www.the-actuary.org.uk/874860