1. The impact of the actuarial standard of practice

(1) The impact on the public

The actuarial standard of practice stipulates corresponding hypothesis, steps, techniques and approaches in fields of the actuarial practice, which becomes the guideline for the actuaries to handle the actuarial issues, increases the transparency of the actuarial work, and also restrains the actuaries’ conducts effectively through code of the professional conducts, and guarantees creditable, independent and high-quality service.

The actuarial standard of practice indicates the actuaries’ roles and tasks in the public interests, and requires the actuaries to] disclose and inform the clients and other users of their rights and responsibilities, which plays an important role in protecting the public interests. In terms of financial or other sectors that the actuaries are adept, the actuaries are obliged to provide suggestions and guidance openly and fairly, thus enhancing the actuaries’ impact on the public.

(2) The impact on the regulatory authority

The actuarial standard of practice can assist in promoting the implementation of the regulatory provisions. The actuarial standard of practice, as the guideline of interpreting or implementing various regulatory provisions, further details the regulatory provisions in favor of the implementation and execution of the regulatory provisions. For example, in Chinese Taiwan, each actuarial standard of practice issued by the actuarial association closely follows the laws and regulations to promote the implementation.

The actuarial standard of practice can be served as the effective supplement of the regulatory provisions. Compared with the legislative process of the regulatory provisions, the actuarial standard of practice can make a quick response to the market more professionally. According to the surveys, overseas regulatory authorities support the release of related practice standards.

The actuarial standard of practice can assist the regulatory authorities in performing industry self-discipline. Establish the actuarial self-discipline mechanism to realize self-supervision through the practice standard and discipline, and combine the administrative penalty of the regulatory authorities to form a complete system to protect the public interests to the greatest extent.

(3) The impact on the actuarial profession

The actuarial standard of practice provides technical guidance and reference for the actuarial assignment. The mature actuarial standard of practice shall perform regular research, review and updating on actuarial approaches and elements. In particular, for small-sized insurance companies or the companies without any proficient actuaries, the actuarial standard of practice provides a feasible program in practice, which can make up these companies’ shortage of experience and actuaries, and reduce corporate operating burden.

The actuarial standard of practice can supervise the actuaries. The actuaries who violate the code of professional conduct will be disciplined, and the disciplined actuaries list will be publicized for the purpose of prompting the actuaries to strictly comply with the actuarial standard of practice.

2. The international actuarial standards of practice setting and implementation

The actuarial standards of practice are, in general, divided into actuarial profession standards and technical actuarial standards. The actuarial profession standards stipulate the actuaries’ code of professional conduct, which are the essentially professional requirements for the actuaries. The technical actuarial standards stipulate hypothesis, steps, techniques and approaches of the actuarial practice to provide the practical guidance for the actuarial assignment, which are technical guide for the actuaries to handle the actuarial issues. The actuarial standards of practice in a majority of developed insurance markets are stipulated by the actuarial associations. The names for the actuarial standards of practice from 7 major countries or regions are shown in the Fig. above.

(1) The international actuarial standard setting bodies

1. The U.S.The Actuarial Standards Board (ASB) promulgates actuarial standards of practice (ASOPs). The actuarial standards of practice in different fields are enacted by 5 ASB Committees: including Casualty Committee, Health Committee, Life Committee, Pension Committee and General Committee. To establish new actuarial standards of practice or to update previous actuarial standards of practice, ASB formulates Actuarial Standards-Setting Process: (1) Reviewing and evaluating current practices and new practices, e.g., what can new standards and practices solve? (2) Determining proper guidance; (3) Publicizing the exposure draft to obtain the comments from members and public; (4) Committee discusses comments, revises, responds and publicizing final standard when approved by the AAA board.

2. The UK. The actuarial standards of practice include Actuarial Profession Standards (APS) and Technical Actuarial Standards (TAS), which are promulgated by Institute and Faculty of Actuaries (IFoA) and Financial Reporting Council (FRC) respectively.

Institute and Faculty of Actuaries (IFoA) has set up process to promulgate, revise and update the actuarial profession standards. Firstly, the initiator submits the proposal to Standards Review Committee (SRC, independent of FRC and IFoA). Provided that the proposal is adopted, SRC submits the proposal to the corresponding practice committee in IFoA for opinions. After obtaining the opinions, the proposer submits the drafted report to SRC for review and discussion. Finally, the proposer submits an amended draft including all the amendment record to SRC. If the opinions make some major changes during the opinion collection period, SRC may prolong the opinion collection period. If the draft is adopted by SRC, the actuarial profession standards are established and publicized.

Financial Reporting Council (FRC) is an independent regulatory authority, responsible for promulgating the standard framework including auditor, actuary and accountant and supervising the implementation of related standards. Technical Actuarial Standards are promulgated by the Actuarial Council affiliated to FRC.

3. Canada. The actuarial standard of practice is promulgated by Canadian Institute of Actuaries (CIA). The Board of Directors of CIA shall notify the promulgation, amendment or abolishment of any regulations, regulatory provisions and guidelines to all the members of the board of directors via a board meeting, which become effective when more than half of the members of the board of directors attend the board meeting, and more than half of the members present approve. If more than 5% of the voting members set forth a proposal on promulgation, amendment or abolishment of any regulations in the regular session of the CIA, the president shall notify all the voting members via the secretariat at least 14 days prior to the next regular session. In the next regular session, the proposal shall be adopted with the approval of no less than 2/3 of the voting members.

4. Hong Kong. The actuarial standard of practice is promulgated by Actuarial Society of Hong Kong (ASHK). The amendment of the actuarial standard of practice includes three stages: (1) Validation of Proposal. The board of directors determines if the profession standards shall be revised and updated; (2) Collection of Opinions. The board of directors appoints a standing committee to collect the opinions from organizations and individuals, and records the course of promulgation and revision of the proposed standards and the causes of revision or rejection of the proposed standards into the exposure draft; (3) Determination. The board of directors votes by ballots on the proposal, and the profession standards are adopted with the approval of at least 3/4 of the members of the board of directors.

5. Taiwan. The actuarial standard of practice is promulgated by The Actuarial Institute of Chinese Taipei (AICT). The process of promulgation and exposure of the actuarial standards of practice is as follows: Financial Supervisory Commission Insurance Bureau (or Taiwan Insurance Institute), based on the need of “regulation provisions”, sends the letter to AICT for promulgating the actuarial standards of practice; AICT assigns the task to related standards research committee to prepare exposure draft; when the standards research committee sends the draft to AICT secretariat, enters the comment collection period; after the comment collection period comes to an end, the standards research committee convenes a meeting to discuss the collected opinions, and amends the contents of the draft according to the resolution; the amended standards, in principle, shall be publicized by AICT directly.

6. Singapore. The actuarial standard of practice is enacted by Singapore Actuarial Society (SAS). In 1997, SAS enacted an actuarial standard of practice, which specified the main principle that all the members of SAS shall comply with. Additionally, SAS will enact some guidelines at any time to help its members understand the actuarial standard of practice. If necessary, SAS will enact some specialized guidelines to establish some acceptable practice standards. If any members raise an objection against any adopted principle or any performed professional conduct in a special case, they may seek for guidance from the members of the board of directors.

7．Australia. The actuarial standard of practice is enacted by Institute of Actuaries of Australia (IAAust). The procedure of enacting the actuarial standard of practice is as follows: (1). Proposal. Related organizations or individuals raise a proposal of enacting or amending the actuarial standard of practice to the Professional Standards Committee (PSC); (2). Drafting. If the application is approved, the PSC notifies the Practice Committee to enact the standard, and then the Practice Committee establishes a Drafting Committee; (3) Collection of Opinions. After drafting and approving the draft, the Practice Committee submits it to the PSC, and performs opinion collection and review of the draft; (4). Determination. The PSC performs the detailed review of the draft to determine the next step; (5). Approval. The PSC submits the proposal to the board of directors. If the proposal is approved, the standard is adopted; if the proposal is not approved, return the amending advice to the PSC for further amendment.

(2) Execution of international actuarial standards of practice

The actuarial associations in various countries or regions make use of the actuarial standards of practice to provide the guidance for the actuaries. The actuarial associations view the development of the actuarial profession as the primary responsibility, enacting the code of the professional conduct and relevant conventions, industrial actuarial standards of practice and the manual like practice guide through setting strict qualification authentication standard, and guaranteeing the implementation and execution of the standards through some effective self-discipline procedures.

The actuarial associations in various countries or regions enact some punishment systems on violating the actuarial standards of practice. Taking American Academy of Actuaries (AAA) as an example, AAA has some systematic severe punishments on the conducts of violating the actuarial standards of practice. The public punishments include: Public Censure, Suspension of Membership, and Cancellation of Membership. Three punishment cases are publicized by AAA as follows:

Case 1 (Public Censure): Andersen suggested his clients to convert DB plan into DC plan. His failure to perform his professional skill service as an actuary violates the requirements in the Article 1 of American Academy of Actuaries Code of Professional Conduct. His failure to pay the membership fee in six consecutive years and his continual use of MAAA title violate the requirements of the Article 12 of American Academy of Actuaries Code of Professional Conduct. Considering that Andersen agreed to pay the membership fee in arrears, AAA decided to give Andersen the punishment of the public censure on Oct. 17, 2014.

Case 2 (Suspension of Membership): McGee signed in two reports on the retirement system in 2003, but he knew well that the code error will result in the underestimation of the liabilities. His conduct violates the requirements of the Article 1 of American Academy of Actuaries Code of Professional Conduct. His failure to disclose and report it violates the requirements of the Article 3 of American Academy of Actuaries Code of Professional Conduct. Moreover, his failure to disclose his dependence on the third-party data to make his assessment violates the regulations of ASOP 23 on the data quality. Therefore, McGee will be suspended his actuarial qualification for 3 years as of Nov. 2012.

Case 3. (Cancellation of Membership): Lederman’s work conduct in an insurance company during 1987 to 1996 seriously violated the requirements of the Article 1 of American Academy of Actuaries Code of Professional Conduct. According to the suggestion from Actuarial Board for Counseling and Discipline (ABCD), AAA cancelled Lederman’s membership in 2009.

According to the status quo of the international actuarial standards of practice, there exist the following modes: (1). American ASOP Mode. It includes some common standards of various actuarial sectors and some detailed technical standards of specific actuarial sectors. The technical standards are relatively close to the regulatory provisions, which provide the guide for the actuaries. Canada and Australia take American ASOP Mode for reference. (2) Taiwan Mode. Taiwan Mode is characterized in that the actuarial standard of practice is closely linked with the actuarial regulations issued by the regulatory authorities, even as the expansion of the regulatory regulations to provide the guide for the execution of the regulatory regulations. Singapore takes Taiwan Mode for reference. (3). British APS and TAS Mode. The profession standards and the technical standards are enacted by different organizations respectively. The profession standards are relatively specific, even in a specific actuarial sector. The technical standards are relatively general, which enact a uniform standard in model, data and report, and have no direct relation to the regulatory provisions. Hong Kong takes British APS and TAS Mode for reference.

3. Reflection and suggestion on establishing the actuarial standard of practice in China.

Opinions of the State Council on Accelerating the Development of the Modern Insurance Service Industry, issued in Aug. 2014, places the modern insurance service industry into the integrated layout of the economic and social work to make overall arrangements, so the insurance industry will play an important part in the modernization of national governance. In Feb. 2015, China Insurance Regulatory Commission officially issued 17 regulatory regulations of China Risk Oriented Solvency System (“C-ROSS”), so China insurance industry entered the transitional period of the Solvency II. C-ROSS covers all the risks of the insurance company, gives refined scientific measurement and evaluation standard on the major risks, and links the risks and the risk management ability with the capital fund directly, which guarantees the market-oriented reform, creates conditions for releasing front end, and enhances the requirements of the insurance company on the risk management and the actuarial management greatly. Moreover, with the marketization of interest rate, life insurance rate and commercial auto insurance rate, the actuaries and the actuarial work are given special social attribute and responsibility, playing an increasingly-important role in pricing reasonably, maintaining benign market competition, protecting the consumers’ rights and interests, controlling the related risks of the insurance company, and guaranteeing no systematic risks.

China actuarial industry started relatively late. Founded in 2007, China Association of Actuaries (CAA), as a national actuarial organization, has possessed nearly 1000 full members and associate members, but the construction of its actuarial profession system and actuarial standard of practice is still at its preliminary stage. To enhance the foundational work of the actuarial management, according to the status quo of China actuarial industry and the experience of overseas emerging markets, China actuarial industry will learn from the enactment and implementation of the actuarial standard of practice, and establish the actuarial standard of practice in the actuarial profession self-discipline standard, technical guideline of the actuarial work and interpretation of regulatory regulations in accordance with China’s actual situation:

Firstly, China actuarial standard of practice is enacted by China Association of Actuaries (CAA). The USA has many actuarial associations and societies, but China only has an actuarial association, China Association of Actuaries (CAA). So, CAA shall take charge of enacting the actuarial profession standards and the actuarial technical standard.

Secondly, China shall establish the actuarial profession standards and improve the code of actuarial professional conduct and punishment standards. According to overseas experience, China shall establish basic professional standards and practicing requirements, determine the actuaries’ qualification requirements and corporate and social responsibilities, and establish the punishment system of the actuaries and various specific actuarial standards of practice.

Thirdly, in combination of the development of the regulatory regulations and the demands of the actuarial practice, CAA shall establish China technical actuarial standards system. (1). Gradually build some universal actuarial standards of practice for various actuarial sectors, including some common standards in actuarial data, actuarial hypothesis, actuarial model, actuarial report, etc., and form the flow and work mode of regularly reviewing and revising actuarial data, hypothesis and model. (2). According to the significance and urgency of the industrial impact, combine the regulatory system to implement and enact specific operating guideline. For instance, according to some recent actuarial issues possibly derived from the execution of C-ROSS regulatory system, the actuarial standard of practice shall provide guideline as soon as possible. (3). Timely enact related actuarial practice guidelines according to the execution of the actuarial regulatory provisions and the industrial demands. The actuaries’ different understandings result in the big difference of execution at the implementation stage of some regulatory provisions, the actuarial association shall enact corresponding technical practice standard.