Chapter 1 - Actuarial Advice

Question 1

Who do actuaries advise in the private vs public sector ?

Answer 1

Private sector advising to :
- Banks
- Insurance Company
- Shareholders
- Pension Scheme Trustees
- Pension Scheme Sponsors
- Employees
- Policyholders
- Board of Directors
- Investment fund managers
- Members of investment schemes

Public sector advising to :
- Government agencies
- Reserve Bank
- Central Bank (eg. SARB )
- Regulatory Bodies ( eg. FSB , FSCA .. )

Question 2

How are stakeholders other than the client affected by Actuarial advice ?

Answer 2

• All stakeholders must be considered when giving advice , not only those who seek ( and pay for ) the advice
• Retain a sense of proportion when considering who else may be affected by advice given
• Consider vulnerable stakeholders such as
  
  • people earning below threshold
  • people living with AIDS/HIV
  • elderly

Question 3

Explain why and how certain factual information should be sought before giving advice ?

Answer 3

• Thorough research on client to find relevant information available in the public domain
• Preproject meeting to fully understand client position ( eg. meeting we had with TaiAscends )
• Be cognisant of conflict on interests ( eg. potential coi’s with Miway and if we did business for similar company before )

Question 4

Why are subjective attitudes of clients and other stakeholders - especially towards risk - relevant to giving advice ?

Answer 4

• There are subjective pieces of information regarding a client we need to focus on such as client background , ethical position , culture , etc . eg. giving investment advice to an animal charity means not recommending investment in companies who test products on animals
• Corporate bodies have a risk appetite , driven by their stakeholders , particularly owners and their appetite is frequently described in their annual / published statements
• Also be aware of the general style and culture of the client

Question 5

Types of Advice

Answer 5

1. Indicative - giving opinion without fully investigating issues such as responding to an oral question
2. Factual - based on research of facts , eg. legislation
3. Recommendations - research and modelled forecasts , alternatives weighted , peer reviewed work ….

Question 6

Distinguish between responsibility for giving advice and responsibility for taking decisions

Answer 6

• Actuary will make specific assumptions in giving advice and recommendations
• Reasons for assumptions will be given and implications of alternative assumptions / solutions that may have been considered and not recommended will be disclosed
• Final decision on solution is up to the client
• eg. From the blink ga data , we conclude and recommend that the optimal marketing budget needed for adequate scaling is R10 mil per month but final decision is decided by the board of directors
• Should the actuary be in a position to make decisions ( eg. occupy an executive role ) then there is the danger that they will make decisions based on their own conclusions only and they therefore should :
• seek further advice
• conduct peer review
• ensure rationale behind decisions is documented including documentation of considered alternatives

Question 7

Professional & Technical Standards applying to actuarial advice

Answer 7

Six main principles of actuaries code:
1. Integrity
2. Competence and Care
3. Impartiality
4. Compliance
5. Speaking Up
6. Communication

• SAP’s must be adhered to by all members of ASSA
• APN’s are designed to guide actuaries in their relevant practice area and departure from this guidance should be disclosed and adequately justified