The Professionalism Education Working Group is frequently asked to publish articles on topics related to actuarial professionalism, including clarifying how the Code of Professional Conduct and the Actuarial Standards of Practice (ASOPs) apply in various scenarios. Our work explores key aspects of professionalism, emphasizing the importance of integrity, accountability, and adherence to professional standards in all areas of actuarial practice.
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Actuarial judgment is the disciplined application of experience, expertise, and ethical reasoning to make informed decisions in complex situations. Good actuarial judgment is not a single moment of insight; it’s a pattern of thoughtful, consistent decision making from both experience and integrity.
But what is actuarial judgment?
The Actuarial Standards of Practice (ASOPs) don’t define “professional judgment.” Instead, they refer to what is needed to exercise it by providing an analytical framework.
ASOP 1, Section 2.9 “Professional Judgment” states:
“Actuaries bring to their assignments not only highly specialized training, but also the broader knowledge and understanding that come from experience. For example, the ASOPs frequently call upon actuaries to apply both training and experience to their professional assignments, recognizing that reasonable differences may arise when actuaries project the effect of uncertain events.”
How, then, should actuaries understand the relationship between professional judgment and the standards of practice? ASOPs provide a framework where actuarial training and experience, resulting in actuarial expertise, enables the application of professional judgment when performing actuarial services.
Professional judgment is not subordinate to the ASOPs, but married to them to form a cohesive, happy union. ASOP 1 clarifies this union by stating that “while … ASOPs are binding, they are not the only considerations that affect an actuary’s work.” Those other “considerations” include “the actuary’s own professional judgment informed by the nature of the engagement.” In other words, ASOPs are not substitutes for professional judgment. They are predicated upon its proper application.
However, ASOPs do not give free rein to individual judgment, no matter how expert it is. Instead, ASOPs discipline the exercise of judgment. For example, ASOPs “allow for the actuary to use professional judgment when selecting methods and assumptions, conducting an analysis, and reaching a conclusion,” but within the parameters of what a particular ASOP requires an actuary to “consider, do, document, and disclose.” This means different actuaries can successfully provide actuarial services in accordance with the ASOPs, yet they still “can reasonably reach different conclusions when faced with the same facts” because of their differences in actuarial judgment.
When actuarial judgment is such that the actuary wants or needs to deviate from an ASOP, then they should disclose and document this occurrence, including the nature, rationale, and effect of such a deviation.
The ASOPs might suggest loss development recommended practices, but the selection of the methods and factors themselves might be actuarial judgment. Another way of depicting this is that ASOPs are a toolbox. But deciding which tool, the size of the tool, or if you need to find a new tool is actuarial judgment.
When is judgment used?
Actuaries build up a case about the level of pricing or reserves needed using data (evidence) and a scientific process. We act more like detectives than judges. So where does judgment fit into the process?
At different points in the process, decisions need to be made. Whether they are about data credibility and complements, when to choose between responsiveness or stability, or which other experts to rely on, actuaries are responsible for deciding which evidence to use and how to use it.
Actuaries must apply actuarial judgment to make appropriate and reasonable choices and come to sensible conclusions when performing actuarial services under the constraints of limited time and information. In doing this, other things need to be considered, like the line of business specifics, the business and social environment, company goals, ethical considerations, and what we’ve learned from our education and experience. When the process is close to completion, actuaries need to step back and look at their work and come to practical conclusions and recommendations.
How to develop actuarial judgment?
Judgment is generally developed from eight main categories:
- Education and qualification exams
- Continued lifelong learning
- Understanding and intuition of the business
- Practical experience
- Critical thinking skills
- Mentorship
- Ethics
- Communication skills
First, education and qualification exams. Actuaries need a solid foundation in mathematics and statistics. They must pass a series of exams, which include topics like statistics, financial mathematics, ratemaking and loss reserving, insurance regulation, predictive modeling, and more. These exams are extremely rigorous, and even the most successful actuaries often fail one or more of these exams.
Second, they further strengthen their judgment with continued lifelong learning. As with many professions, continuing education is not just a requirement for upkeep of their credentials but is important so they can be informed of technological, regulatory, and scientific changes. The actuarial landscape is constantly changing, so actuaries need to stay informed.
Third, understanding and intuition of the business. While technical skill is vital, actuaries must develop a strong grasp of the industry they work in, whether it’s auto insurance, workers’ compensation, or emerging risks like climate change. This includes understanding how products are sold, how claims develop, how competitors behave, and how market conditions evolve. Over time, this connection deepens their judgment as they begin to recognize patterns, risks, and assumptions that may not be immediately apparent in the raw data.
Fourth, practical experience. No exam or textbook can fully prepare actuaries for real-world complexity. Over time, hands-on work with actual data, collaborating across departments, and seeing how past decisions play out in real time help sharpen actuarial judgment. Practical exposure brings nuance to methods that may appear straightforward in theory.
Fifth, critical thinking skills. Good actuaries question assumptions, test edge cases, and consider alternative models or scenarios. They avoid blanket application of methods and models; instead, they evaluate whether results make sense in the real-world context. This habit of thinking critically, even skeptically, is one of the most important elements of developing good actuarial judgment.
Sixth, mentorship. Learning from experienced actuaries accelerates growth. Mentors share not only technical insight, but also how they made tough decisions, handled uncertainty, communicated effectively, or even what they learned from past failures. Through mentorship, younger actuaries gain perspective that would otherwise take years to develop on their own. And for mentors, the process offers a chance to reflect on their own careers — consolidating years of experience into lessons that clarify what has shaped their professional judgment.
Seventh, ethics. Sound judgment is not only about being correct. It is also about being responsible. Actuaries handle sensitive data and make decisions that affect pricing, fairness, and public trust. Ethical grounding ensures their judgment serves not just their employers, but also policyholders, regulators, and the broader public. As a self-regulated profession, actuaries must hold themselves to the highest standards of ethics.
Eighth, communication skills. No matter how strong an actuary’s analysis is, it must be clearly explained to non-technical audiences. Good judgment includes knowing what to emphasize, how to tailor messages to different audiences, and when to simplify without misrepresenting.
Indicators of good actuarial judgment
In actuarial work, strong judgment can be difficult to measure directly, but here are clear indicators that suggest it’s been well developed.
Consistent decision making: If your decisions regularly lead to outcomes that align with expectations or desired business results, it’s a strong signal that your judgment is sound. In actuarial work, this might mean reserve estimates that remain stable over time or pricing decisions that accurately reflect emerging experience.
Confidence from others: Trust from peers, managers, clients, or principals is a major indicator. When others consistently seek out your input or rely on your assessments, it often reflects a history of solid, well-reasoned decision-making.
Ability to anticipate outcomes: Actuaries with good judgment can often foresee the likely consequences of various actions or assumptions. Whether it’s anticipating reserve strengthening, shifts in claim frequency, or competitor responses to rate changes, this ability to project outcomes from known data reflects mature judgment.
Strong critical thinking skills: Good judgment requires the ability to assess complex, ambiguous situations and arrive at logical, defensible conclusions. This involves weighing evidence, recognizing biases, testing assumptions, and identifying what matters most in a sea of information and noise.
Learning from mistakes: No actuary gets everything right the first time. What separates those with good judgment is their ability to reflect on past missteps, understand the root causes, and adjust their thinking accordingly. Growth through experience is a key component of sound decision-making.
Ethical decision-making: Actuaries are bound by professional codes and public interest obligations. Consistently making choices that align with ethical standards, especially when under pressure, demonstrates judgment that goes beyond technical correctness to consider fairness, transparency, and accountability.
Flexibility and adaptability: Finally, good judgment requires the ability to adapt. Actuaries must adjust their approach as new data emerges or when business needs or external conditions change. Being open to different perspectives and recognizing when to pivot is a sign of both humility and maturity in judgment.
Do you think you have good actuarial judgment? Have you met a colleague who consistently demonstrates good actuarial judgment? We want to hear your thoughts at ar@casact.org.
