Actuarial Notes

International Actuarial Association

Study guide: Exam GI-201

The International Actuarial Association (IAA) is the worldwide association of national actuarial associations: its members are associations such as the CIA, the SOA and the CAS, not individual actuaries. It sets the professionalism principles that a full member association must meet, which are a code of professional conduct, a formal discipline process, a due process for any standards of practice it adopts, and education that meets the IAA's syllabus. It also publishes model standards of practice (ISAPs) and educational material such as the IAA Risk Book.

\text{FMA} \iff \text{Code} \wedge \text{Discipline} \wedge \text{Standards process} \wedge \text{Education}

\text{Law} \succ \text{Applicable standards} \succ \text{Educational material}

\text{ISAP binds} \iff \text{adopted locally} \vee \text{compliance stated}

  • Full member associations: An FMA must have a code of professional conduct, a formal discipline process, a formal process for standards of practice if it adopts standards, and education that complies with the IAA Education Guidelines and Syllabus, along with minimum size and age requirements. These requirements are what make an actuary's credential from one FMA mean something in another country.
  • Codes of conduct: FMAs' codes must contain a common core of general principles and ethical standards. One such principle is that members comply with the applicable qualification and practice standards. Actuaries are bound by their own association's code and may also be subject to the code and standards of the country where they practise.
  • Principles of professionalism: The IAA Professionalism Committee's guideline PG1 groups the high-level principles under knowledge and expertise, values and behaviour, and professional accountability. Qualification standards cover initial education, continuing professional development and experience.
  • Discipline: The IAA's accreditation criteria for a discipline process are that a complaint process is open to anyone affected by an actuary's work and to the actuary's peers, that the actuary complained against has due process of defence, that there is an independent formal appeal, that sanctions fit the seriousness of the violation up to termination of membership, and that the public is told the result when a penalty is imposed.
  • Standards and law: Standards are usually principle-based. They say what the actuary should consider, do and disclose, and they allow a departure that is justified, identified and explained. Regulations are more prescriptive, and where the two conflict the law governs.
  • ISAPs as model standards: ISAP 1, General Actuarial Practice, applies to actuarial work generally, and ISAP 4 covers IFRS 17 insurance contracts. An ISAP is binding only where a local standard-setter adopts it, bases a standard on it or declares its standards substantially consistent with it, or where an actuary states compliance with it in a report.
  • Educational material: International Actuarial Notes, the Risk Book chapters and monographs are educational. An actuary may use them or not, and they do not bind anyone.

Testing an Applicant's Discipline Process A national actuarial association applies for full membership. Its discipline scheme lets only members file complaints. A panel of the governing council hears each case and can issue a private reprimand at most, and appeals go back to the same council. The actuary complained against may present a defence, and the outcome is published when a penalty is imposed. How many of the IAA's five discipline criteria does the scheme meet, and what must change?

Answer

Criterion Met?
Complaints open to anyone affected and to peers No
Due process of defence Yes
Independent formal appeal No
Sanctions up to termination of membership No
Public notice of penalties Yes

The scheme meets 2 of the 5 criteria. To qualify, the association must let clients and other affected parties complain, have appeals heard by a body independent of the one that ruled, and give itself sanctions up to expulsion. Until then it does not have the formal discipline process that full membership requires.

Stating Compliance With ISAP 1 and Judging Materiality An actuary works in a country whose standard-setter has not adopted any ISAP. A client asks the actuary to state compliance with ISAP 1 and ISAP 4 in a report on IFRS 17 liabilities of $480 million. The actuary sets materiality at 1% of the liabilities and finds two issues: a data omission worth $1.5 million and a discount-curve error worth $6.0 million, both increasing the liabilities. Are the ISAPs binding, and which issues are material?

Answer The ISAPs are binding because the actuary states compliance with them, even though no local standard-setter adopted them. The threshold is

\begin{align*}
\text{Threshold} &= 0.01 \times 480 \\
&= 4.8 \\
\text{Combined} &= 1.5 + 6.0 \\
&= 7.5
\end{align*}

The $6.0 million error is material on its own and must be corrected or disclosed. The $1.5 million omission is below the threshold alone, but the two together are $7.5 million, so the actuary considers their combined effect rather than dismissing the smaller one. Materiality is judged from the intended user's point of view, so a 1% threshold is a starting point, not a rule.

How it appears on the exam

  • GI-201 (objective 7a): Candidates describe, interpret and apply the professionalism principles as defined by the IAA, from the Risk Book chapter on professional standards. Expect lists such as the requirements for full membership, the discipline criteria, and the benefits of standards to the public, regulators and actuaries.
  • GI-201 (objectives 7b and 7c): Questions ask how ISAPs are used as model standards, what ISAP 1 requires of actuarial work in general, and what ISAP 4 adds for IFRS 17.
  • Applied questions: A scenario describes an actuary's conduct or an association's rules and asks which principle or criterion is breached and what should be done, as in the examples.

Exam traps

  • Members are associations: The IAA's members are national associations, so an individual actuary is not an IAA member and is not disciplined by the IAA. Discipline is done by the actuary's own association.
  • Model, not binding: An ISAP does not bind an actuary just because it exists. It binds through local adoption or through the actuary's own statement of compliance.
  • Silent departures: A standard may be departed from where applying it would be inappropriate, but the departure must be identified and explained. An unexplained departure is a breach.
  • Educational is not mandatory: International Actuarial Notes and Risk Book chapters explain practice but are not standards. Citing them as requirements misstates their status.