Mr. Moser, who took the role of by-the-book stickler who responded to every problem by clinging to precepts of the Societys Professional Code of Conduct, had been presented with a hypothetical problem facing an imaginary actuary, Vinny, who had been hired by an insurance department.

Asked to review the reserves of a small property-casualty company that didn't have much data, Vinny's wide range of estimates included a best estimate that showed the company was insolvent. By contrast, the company's appointed actuary, Sally, whose estimates Vinny believed were “unreasonably low,” had issued a clean reserve opinion.

“What should he do?” the session's moderator, Richard Currie, vice president and actuary for American Re-Insurance Company in Princeton, N.J., asked Mr. Moser.

“It's a no-brainer. He has to speak up,” Mr. Moser said, playing his role and referring to the Code's first precept, which says actuaries must fulfill the profession's responsibility to the public.

Playing out the opposite extreme–the role of an actuary that Mr. Currie described as the “business person”–David Otto, consulting actuary for The Kilbourne Company in San Diego, responded. “It certainly is a no-brainer,” Mr. Otto said. Vinny's “best estimate says they're insolvent, but we all know there's a range of reasonable estimates, and he could certainly go with a lower number and the company will be fine. Plus, Sally's the appointed actuary. She probably knows a lot more than Vinny” anyway, he said.

Stickler Moser responded in character. “Look at this whole Enron situation. Say that you've done your analysis and you have papers lying around your desk that say your best estimate puts this company out of business. What if the company does go out of business and you said nothing. Are you going to shred documents?” he asked.

“Hindsight's 20-20,” Businessman Otto replied. “We all know that a critical part of actuarial science is judgment,” dismissing his responsibility just because “things turned out to be bad.”

“Maybe my decision to go with the lower [answer] was a good one at that time,” he said, prompting Stickler Moser to launch into questions about the need for accountability to counterbalance “actuarial judgment and creativity.”

While Mr. Currie stressed that positions being played out were “caricatures,” audience responses to the situations were real, as were the views that Jeffrey Post, president and chief executive officer of Fireman's Fund Insurance Company in Novato, Calif., expressed from the podium at the meetings closing session.

During that separate session on market cycles, Mr. Post, who is a fellow of the Casualty Actuarial Society, also challenged the actuaries in attendance to replace creativity with accountability.

“This industry has a track record of consistent financial underperformance. That should make everyone in this room madder than hell [because] we are the financial conscience of the insurance industry,” he said. Noting that the industry had averaged only a 10 percent return over the last 10 years, “there's no reason it needs to be that way,” he said. “We need to step up as actuaries, act professionally, and get this industry back to a level that makes it sustainable going forward.”

He also said: “I challenge you to ask whether an Enron-type situation may have already happened somewhere in our industry and we just dont know it yet.”

At the Enron session, Mr. Currie pointed out that the insurance industry has had its share of Enrons, starting with the downfall of Equity Funding Corp., a huge life insurer found to be issuing fraudulent policies in the early 1970s. “At the center of the fraud was the company's actuary, who ended up spending time in prison for his actions,” he said. “Seemingly insignificant acts can eventually end up as a major fraud.”

While none of the speakers accused current-day actuaries of blatant fraud, Mr. Post was unrelenting in his consciousness-raising efforts during the session on market cycles.

“One of the reasons we had a 10-year soft market is because those of us who are actuaries have been very clever in using reinsurance to accelerate earnings,” he said. Referring to what he called the “aggregate-excess-of-loss hangover,” he said that all of the large aggregate excess-of-loss covers in the marketplace are one reason behind a large drop-off in investment income that's occurring.

“Companies now have to pay back these covers that allowed the industry to have a fair amount of earnings in the late '90s, when the fundamentals of our business were weak,” he said.

Calling on actuaries to sit down and communicate with underwriters and executives to help them understand the ramifications of their decisions, he said, “the business is not as complex as we sometimes make it. We don't need a lot of clever ways to fit curves. We need, instead, to develop skills in leading and influencing people,” he said.

At both sessions, actuaries responding from the audience engaged in more conscience-clearing than consciousness-raising.

“The incentives are to not be the industrys conscience,” one consulting actuary told Mr. Post. Noting that an actuarys greatest skill “is to keep people out of bad deals,” he said, “nobody pays a lot of money to do that. They pay money to make deals, even if those deals turn out negative,” he added, recounting a situation where he watched an insurer continue to write business as its reserve position grew steadily worse.

That same actuary spoke up several times during the Enron session.

“If I thought that I was being tainted every time any actuary did something questionable, I would have given it up,” he revealed at one point. His remark came after Mr. Moser and Mr. Otto played out another scenario in which a pricing actuary's boss asked him to appease management by changing a cost inflation assumption on a homeowners rate filing. The change would swing an indicated 5 percent rate increase to a 5 percent drop.

In response to that hypothetical situation, which had only the actuary's boss (played by Mr. Otto) signing the modified rate filing, Mr. Otto's character took the “who-cares-if-you're-not-going-to-sign-it” viewpoint. “You ask three actuaries a question and you get four answers.” What's the big deal, he said, adding that marketing and underwriting considerations should also be considered in the ratemaking process.

Mr. Moser's by-the-book actuary responded by referencing a Code precept requiring actuaries to act honestly and to uphold the reputation of the profession. If “you and I are both members of the same actuarial profession, that means if you put your letters on [a] document, you're representing me as well,” he said.

“I would respectfully disagree that when an actuary signs their name and initials, that they're signing everybody's,” the actuary in the audience responded. “The NAIC requires an individual to sign an actuarial opinion on reserves because they want an individual opinion, not because they're saying the whole profession stands behind it.”

Mr. Currie said the purpose of the session was to increase awareness of the applicability of the Code of Professional Conduct to the day-to-day work of actuaries, calling on them to use various precepts about integrity, communication, conflicts of interest, confidentiality and cooperation as “a set of guideposts” in their work.

As the session progressed, however, the eerily realistic examples made it clear that the actuaries–a small part of a larger world of professionals responsible for financial reporting and business decisions–could not simply rely on their codes of professional ethics to resolve their daily dilemmas. While not all those dilemmas mirrored the types of decisions that brought down Enron or Equity Funding, well-intentioned audience members using the Code to frame their answers demonstrated the flexibility of their professional guideposts.

“What you could do is file for a 5 percent increase, and then issue a 10 percent discount,” a creative actuary suggested in response to the pricing problem, finding a way to please his boss and keep his objectivity at the same time.

“Make it clear, not just to your boss but to management, that if you choose to write at this [lower] rate, youre going to lose money,” said another, absolving himself of the responsibility to set adequate rates as long as he conformed to the honesty precept.

In response to the reserving example, most actuaries correctly said that their professional code required Vinny to communicate with Sally about their differences. But many put more onus on poor Vinny to document his conclusions, demonstrating a greater willingness to accept the idea that Sallys answer was correct.

Faced with a different kind of dilemma, one in which an actuary realizes that an error in a year-old rate filing caused his company to overcharge customers for a year, the honesty precept was all but forgotten.

“Unless you're in a noncompetitive market, you actually gave up some of that money” through loss of market share, one actuary reasoned. “You dont owe an obligation to people who willingly bought the coverage” at the higher price.

Another made a hair-splitting distinction between calculation and data errors, asserting that the insurance department should have caught a calculation error, thereby removing the responsibility of the actuary to correct it.

Mr. Currie told the actuaries that they are called upon to make “the best and most honorable decisions” they can, “the most professional ones we're capable of at the moment that we make them.”

“But if we're honest with ourselves, we will admit that we probably made decisions that we would rather not have made,” he said.

Reproduced from National Underwriter Property & Casualty/Risk & Benefits Management Edition, July 22, 2002. Copyright 2002 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.