Professional Insight
Ethical Issues

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Ethical Issues is written by members of the CAS Committee on Professionalism Education (COPE). The column’s intent is to stimulate discussion among CAS members. Therefore, positions are sometimes stated in such a way as to provoke reactions and thoughtful responses on the part of the reader. Responses are welcomed. The opinions expressed by readers and authors are for discussion purposes only and should not be used to prejudge the disposition of any actual case or modify published professional standards as they may apply in real-life situations.

P.I. Skware is an FCAS who has been employed by Wedu Consulting Services for 12 years. She has worked on a wide range of projects during her tenure but specializes in workers’ compensation (WC) reserving for captives and self-insureds.

Legs & Arms, Ltd. (L&A) is a manufacturer of mannequins for the fashion and retail industry and has been in business for over 50 years. L&A has been insured under a large deductible WC policy with a deductible of $100,000 per occurrence for the last 15 years. The company has engaged Wedu for the last 10 years to perform an analysis of its retained liabilities related to this deductible. P.I. was assigned to the L&A account from the very start and has been performing quarterly analyses of its unpaid claim liabilities ever since.

Times have been hard for L&A. First, the migration from brick and mortar to online shopping decreased the demand for mannequins. Now, U.S. tariffs on goods from China and other countries are restricting the supply of cheap clothing. Most of the department store chains that buy from L&A are in this segment of the market. L&A is looking to cut costs to stay afloat.

A few months ago, Rick Skee, the risk manager for L&A, told P. I. that the CFO is requiring that an RFP be issued for actuarial services on the WC program to see if the company could reduce its costs. P.I. has been working with L&A for a long time and understands the difficult situation. After discussing the situation with Wedu management, P.I. submits a proposal that lowers their fees by 20 percent from current levels, while still providing the same services. After returning from an extended vacation, P.I. becomes involved in a due diligence project for another client that takes all of her time and attention. The due diligence project is completed two months after the L&A proposal was submitted, and P.I. realizes that she has not heard back from L&A on the RFP process. P.I. calls Rick only to find out that Rick is no longer with the Company. P.I. contacts Rick through LinkedIn and sets up a call. During the call, Rick explains that he was part of the recent downsizing at the L&A. After expressing her concern for Rick’s situation, P.I. asks about the actuarial RFP. Rick tells her that his layoff occurred before a decision was made, but he still has friends at the company and will find out for P.I.

Later that day, Rick calls P.I. and tells her that, while the Company would have preferred to stay with Wedu, the CFO decided to award the work to another consulting actuary.  Rick tells P.I. that the new actuary recently completed her first analysis, which resulted in a significant reduction in the estimated WC liability and forecasted rates for the remainder of the year, compared to P.I.’s last report. He also tells P.I. that the company is expecting the reduction in expense to have a very favorable impact on year-end results and is excited to share the resulting increase in profit on its earnings call in three months.  P.I. tells Rick that she is very surprised about the reduction in the WC estimates and asks about the actuary.  Rick’s contact informed him that the work was awarded to Penny N. Teller, an ASA who had been L&A’s lead consulting pension actuary for the past eight years.

In an effort to reduce costs, the company recently froze its pension plan. This significantly reduced the amount of consulting work needed, resulting in less billable hours and fees for Teller. P.I. learned from Rick that Teller foresaw the upcoming reduction in consulting work on L&A’s pension plan and the likelihood that the WC actuarial services would be put out to bid. In response, she has been reading material from CAS exams related to estimating unpaid claim liabilities as well as other industry information on WC. Teller also attended the most recent NCCI Annual Issues Symposium to build her WC expertise. Rick tells P.I. that all of this information is confidential and he asks P.I. not to share any of this information with anyone else as it could jeopardize his severance package and his reputation in the industry.

P.I. is shocked that the company would allow an actuary without a P&C designation to perform the WC study. Without talking with anyone from the company, P.I. contacts Teller and questions her about her qualifications to provide actuarial services related to large deductible WC programs. Teller believes that it is inappropriate for P.I. to challenge her qualifications but does tell P.I. about the WC and P&C reserving knowledge that she has gained in recent months. She goes on to tell P.I. that she also has a personal friend who is a P&C actuary to whom she can pose questions as needed and that, while it is none of P.I.’s business, she believes she is qualified to provide these actuarial services. Knowing that the company has a significant portion of its unpaid claim liability connected to permanent total disability life-time claims, Teller asks P.I. how up-to-date she has been on recent trends in mortality and asks P.I. if she is sure she was qualified when she provided past reports.

Should P.I. Skware contact the ABCD?


Precept 2 states “An Actuary shall perform Actuarial Services only when the Actuary is qualified to do so on the basis of basic and continuing education and experience, and only when the Actuary satisfies applicable qualification standards.” P.I. has found no evidence that Teller is qualified.

Precept 13 states “An Actuary with knowledge of an apparent, unresolved, material violation of the Code by another Actuary should consider discussing the situation with the other Actuary and attempt to resolve the apparent violation. If such discussion is not attempted or is not successful, the Actuary shall disclose such violation to the appropriate counseling and discipline body of the profession, except where the disclosure would be contrary to Law or would divulge Confidential Information.”


Precept 1 states that “an Actuary shall act honestly, with integrity and competence, and in a manner to fulfill the profession’s responsibility to the public and to uphold the reputation of the actuarial profession.” P.I. cannot act with integrity while giving out information that she was asked to keep confidential.

Precept 9 states “An Actuary shall not disclose to another party any Confidential Information unless authorized to do so by the Principal or required to do so by Law.” P.I. only learned about the new actuary and the lower estimates from Rick through his contact, and his information is not publicly known. In addition, Rick told P.I. the information about Ms. Teller in confidence and asked her not to share it. To share this information with others would be a violation of that trust.


Based on Precepts 2 and 13, P.I. could contact the ABCD for informal guidance on how to proceed with this matter. Members and staff of the ABCD will make a reasonable effort to keep confidential the facts and circumstances involved in any request for guidance, subject to the confidentiality provisions in Section X of the Rules of Procedure.