A principles-based framework built 25 years ago continues to guide a profession in constant evolution.
By Virginia Hulme
Professions are distinguished by the specialized knowledge, training, and experience their practitioners possess—qualities that most people lack. The public must trust that professionals will be honest and perform services competently. To help foster that trust, most professions have a code of conduct.
The actuarial profession is no different. A standard of conduct is needed to protect the public from bad actuarial work, preserve trust in the profession, guide professional judgment, reinforce accountability, and provide a standard against which to measure actuaries and discipline those who fall short.
“Because actuaries’ work impacts the financial well-being of millions of people, our work is rightfully scrutinized by regulators and others,” says Nancy Behrens, vice president of professionalism and a former member of the Actuarial Board for Counseling and Discipline (ABCD). “By enforcing a code of professional conduct, we demonstrate that we will monitor the work of actuaries and take action when their work does not meet the high standard the profession supports.”
The Origins of the Code
The various U.S. actuarial societies began adopting guides to conduct as early as 1957. But the profession recognized that a single voice for the profession was needed: Enter the Academy. In 1965, the Academy was founded and issued its first standard of conduct, “Guides to Professional Conduct,” which established a common ethical framework for all Academy members regardless of which other actuarial organizations they belonged to.1
In 1972, the Academy began efforts to encourage consistent codes across all U.S. actuarial organizations. Although these codes achieved consistency several times over the decades, they also became inconsistent after each adoption, creating confusion and complicating the disciplinary process for actuaries who were members of more than one organization.2
In the 1990s, the Academy spearheaded an effort to create a single, unified code of conduct that would be adopted by all U.S. actuarial organizations. Chaired by Jack M. Turnquist3, the Joint Committee on the Code of Professional Conduct (JCCPC) was established in 1997 and worked tirelessly through two rounds of exposure and comment.4 The Code of Professional Conduct that we know today was adopted by all five U.S. actuarial organizations effective Jan. 1, 2001. The fact that the actuarial profession has managed to maintain this uniform Code for two and a half decades is not something to be taken lightly, says Behrens.
The Basis for Self-Regulation
“Self-regulation is a privilege. If we do not hold ourselves to a clear standard, someone else will, and outside regulation tends to bring more rigidity and less nuance. The Code, paired with the ASOPs and the ABCD, gives us the structure to set our own expectations, counsel one another, and act when conduct falls short. It shows the public that we are serious about managing our own ethical standards.”
—Yukki Yeung
The Code of Professional Conduct defines what it means for an actuary to act as a professional and identifies the responsibilities that actuaries have to the public, to their clients and employers, and to the actuarial profession. Through the Code, actuaries are held to standards of qualification and practice, and are subject to the counseling and discipline process. These elements allow the profession to regulate itself—but only as long as actuaries follow the standards and participate in the counseling and discipline process. So far, the profession has been successful.
“Having the Code as the foundation, including the requirement that actuaries follow the relevant actuarial standards of practice (ASOPs), is well recognized and reinforced by the courts. They see that our self-regulation is working well and defer to it,” ABCD Chairperson William Hines says, citing the recent Supreme Court decision in M & K Employee Solutions, LLC, et al. v. Trustees of the IAM National Pension Fund, which extensively cited ASOP No. 27, Selection of Assumptions for Measuring Pension Obligations, as providing the appropriate guidance to actuaries in that situation.
“Self-regulation is a privilege,” says Yukki Yeung, a member of the Academy’s AI, Data Science, and Analytics Committee. “If we do not hold ourselves to a clear standard, someone else will, and outside regulation tends to bring more rigidity and less nuance. The Code, paired with the ASOPs and the ABCD, gives us the structure to set our own expectations, counsel one another, and act when conduct falls short. It shows the public that we are serious about managing our own ethical standards.”
A Shared Ethical Commitment
A single code benefits the public, the profession, and individual actuaries. As former Academy President Tom Wildsmith wrote, “The Code unifies and strengthens our profession by defining our shared ethical commitments to the public and to each other. This is vital, because professionalism is not just mechanical compliance with a checklist of technical rules; it is a moral commitment to doing the right thing. By creating a common understanding of this commitment, the Code creates the foundation we need to build a culture of professionalism.”5
For the public, who may not be aware of the different types of actuaries and the different organizations they belong to, a single code ensures that all actuaries practicing in the U.S. are held to the same standard. “Each of the membership organizations serves different purposes and segments of the profession,” says Hines. “If we were each held to a different code of conduct, it would not be clear what standards of ethics and practice we hold ourselves to and what the public can expect from an actuary’s work. … Thus, it is important for us as individual actuaries and for the public we serve to have a single code of professional conduct that applies to all members of actuarial organizations practicing in the U.S.”
Lisa Slotznick, chairperson of the JCCPC, echoes this sentiment, adding, “By having a single code, we … present a united ethical path. This strengthens our overall reputation as actuaries.”
Having one code also simplifies requirements for actuaries. “From a practical standpoint, many of us are members of more than one of the five U.S. actuarial organizations. Having a single code simplifies our personal approaches to professionalism,” Slotznick continues. A single code also avoids multiple, possibly conflicting, codes applying to an actuary’s work,
adds Hines.
Another benefit of a Code that applies across practice areas is that “it also makes the profession portable,” says Yeung. “As actuaries move across pension, life, health, casualty, or newer areas like data science and AI, the ethical foundation does not change.”
Finally, when it comes to discipline, a single code is a huge benefit. Former Academy President Ken Kent, a member of the joint committee that drafted the Code adopted in 2001, recalls, “Before adoption of our single code, each of the organizations had some form of a code of conduct. However, the smallest differences in description of the ethical obligations of a member of our profession can result in a difference in interpretation by each of the member organizations.” Such differences would also make it more difficult for the ABCD to consider different codes and arrive at consensus. “There should be no difference in the fundamental ethical obligations of actuaries,” he says.
A Stronger Profession
The Code strengthens the profession by setting expectations for high standards of conduct—and not just for actuarial work. “The Code gives actuaries a basis for good conduct, holding us up to a high standard not just in our qualifications, standards, and discipline but also in other aspects of our outward-facing behaviors—communication, advertising, and overall integrity,” Slotznick says. “This basis impacts our behavior, which in turn strengthens the profession and its reputation.”
Through the Code, actuaries are subject to standards of qualification and practice. Thus, the Code “provides assurance to our principals and the public at large that actuarial work will be performed with integrity and only by those who are qualified to do so, free from hidden conflicts and incentives, and according to standards of practice developed for each kind of work,” notes Hines. “It is something those we serve and we as actuaries can rely on in each actuarial work product.”
A Framework for Professional Judgment
The Code embodies key professionalism principles—honesty, transparency, integrity, and competence—and defines an actuary’s professional responsibility to the public, to employers and clients, and to the actuarial profession. To help ensure that actuaries meet this responsibility, it requires actuaries to adhere to the high standards of conduct, practice, and qualifications of the actuarial profession. By establishing a framework that requires actuaries to meet these standards, backed up by a counseling and discipline process, the Code helps create and maintain public trust.
“The Code is the backbone of the public’s trust in us,” says Yeung. “It signals that being an actuary is about more than passing exams. It is a commitment to integrity, competence, and service to the public interest. It also gives us a common language. When I raise a concern, I can point to a shared standard rather than just my own opinion. That shared foundation is what lets the profession speak with one voice and hold itself accountable from within.”
The Code is the foundation of the ethical framework that supports actuaries in making the right choices even when facing pressure to compromise ethics. If the Code is the foundation on which actuarial professionalism is built, Precept 1—which establishes that professional competence, honesty, and integrity are fundamental professionalism requirements—is the foundation of the Code, the core idea from which all professionalism requirements flow.
Precepts 2 and 3 establish two more foundational requirements—the requirement to be qualified and the requirement to follow standards of practice. Precept 2 requires actuaries to be qualified based on basic education, experience, and continuing education. Precept 3 requires actuaries not only to follow standards of practice themselves, but also to ensure that actuarial work done under their direction meets those standards of practice. Precepts 2 and 3 are parallel in some respects: They both require the actuary to meet the standards of the jurisdiction in which the actuary is rendering actuarial services, and they both require the use of professional judgment, not only in determining which standard applies but also in determining whether the actuary is qualified (also known as the look-in-the-mirror test) and how to follow a standard of practice. Precept 3 even allows the actuary to use professional judgment to deviate from a standard of practice, as long as the actuary can justify the deviation.
The next few precepts concern transparency and honesty. Precepts 4 and 5 cover communications, which must be clear and appropriate to the circumstances and intended users. They require the actuary to identify the responsible actuary and the principal for whom the work is being done. Precepts 6 and 7 address conflicts of interest, requiring the actuary to disclose compensation in certain situations, pertinent relationships that may not be apparent, and any conflict of interest. The actuary may proceed with an assignment only when any conflicts of interest have been disclosed to the principals involved, the principals have agreed that the actuary may do the work, and the actuary’s ability to act fairly is unimpaired.
Precept 8 covers control of work products and requires actuaries to take steps to ensure their work is clear, fair, and includes limitations on use and distribution to reduce the risk of the work product being used to mislead other parties. Precept 9 requires actuaries to maintain confidentiality of nonpublic information they become aware of during work for a principal. Both these precepts help reinforce trust in the profession by reducing the misuse of actuarial work and fostering trust between actuaries and their principals.
Precept 10, covering courtesy and cooperation, could be called the actuary’s golden rule. It recognizes that disagreements may arise between actuaries and requires discussions of differences to be conducted with courtesy and respect. Precept 10 also demands courtesy and respect in more uncomfortable situations, such as when a principal engages another actuary for a second opinion or replaces one actuary with another.
Precepts 11 and 12 return to basic honesty and integrity. Actuaries may not engage in false or misleading advertising or business solicitation activities, nor may they use actuarial titles and designations in a manner not authorized by the issuing actuarial organization.
Precepts 13 and 14: Key to Self-Regulation
The last two precepts, 13 and 14, are key to maintaining the actuarial profession’s reputation and independence. Precept 13 recommends that actuaries who become aware of an “apparent, unresolved, material” violation of the Code try to resolve the issue through discussion with the other actuary. If the issue is not resolved through discussion, or a discussion is not attempted, the actuary is required to report the possible violation to the appropriate counseling and discipline body, with exceptions for confidentiality and law. Precept 14 requires cooperation with the appropriate counseling and disciplinary body of the profession, again subject to restrictions for confidentiality and law. Regarding these obligations, Wildsmith wrote,
“A conversation with a fellow actuary about a potential violation of the Code may be uncomfortable. But even in such difficult situations, or perhaps especially in such difficult situations, upholding and enforcing our own standards is vital to maintaining public trust and integrity—and the independence of our profession. … This is why the Code gives each of us the responsibility not just to follow the Code and standards ourselves, but to speak up when we see possible violations of them.”6
Using the Code: New Ethical Frontiers
Actuarial work has changed tremendously in the past 25 years. The profession has seen not only actuaries moving into new roles and new areas of practice, but also the rise of modeling, predictive analytics, and AI, which have driven concerns about bias, fairness, and transparency in actuarial work.
“The toolkit has changed enormously,” says Yeung. “We have gone from spreadsheets and deterministic models to stochastic modeling, big data, and now AI and machine learning embedded in pricing, underwriting, and reserving.”
These new tools and methods raise ethical issues for actuaries. “The hardest issues sit where actuarial judgment meets AI and advanced analytics,” Yeung says. “These tools are powerful, but they often operate as black boxes, which raises real questions about transparency, bias, accountability, and the limits of our own expertise. We are increasingly asked to interpret and sign off on outputs from models we did not fully build. The Code does not offer a formula for these situations, but it does offer a framework: Stay within your competence, take responsibility for your work product, and be clear about limitations and uncertainty.”
“Change is nothing new,” adds Hines. “When the personal computer became a tool for actuarial work, there was a concern that actuarial work would change dramatically and that our old ways of thinking about what we do would no longer apply. The same is being said of AI today. Yet, the Code is agnostic with regard to tools and topic. It provides a professional and ethical framework within which we can work with all types of tools and subject matter.”
Other issues facing actuaries today include affordability and access to insurance, climate change, geopolitical risk, and the rapid pace of business. “The Code is broad enough to cover these issues if we keep in mind providing services with skill and care, being qualified, and communicating appropriately,” says Slotznick.
Looking Ahead: Balancing Innovation With Professional Responsibility
Because the Code provides principles-based guidance and a broad framework for exercising professional judgment, it remains relevant even for actuaries on the cutting edge of practice. “The Code is not anti-innovation,” Yeung says. “If anything, it frees us to innovate responsibly. It does not tell us which tools to use, so we are free to adopt new methods, but it does ask us to understand what we are using, stay within our competence, and own the results. That balance matters most when the pressure for speed and efficiency is high. The Code is the reminder that being faster or more automated never removes our responsibility for the judgment behind the work.”
Hines agrees: “The Code applies in every project an actuary may do regardless of the subject matter or the tools used. It does not constrain the actuary from using new tools or techniques or from moving into a new subject matter or jurisdiction. Instead, it provides the framework for how to work as a professional and maintain appropriate ethics.”
While the profession and its tools will continue to evolve, the core principles underlying the Code—integrity, competence, objectivity, and accountability to the public—remain foundational. “Precept 1, Annotation 1-1, emphasizes that the actuary is to provide services with skill and care,” regardless of whether the practice is in an emerging area or the actuary is using new tools or innovative methods, Slotznick notes.
While new tools and financial products may pose new risks, “that does not change our obligation to operate with honesty, integrity, and competence, abide by relevant qualification standards and standards of practice, communicate clearly, reveal potential conflicts of interest, take reasonable steps to control our work product, and maintain confidentiality,” says Hines. “That framework will always work for us.”
Crediting the drafters of the Code for having the foresight to create such an enduring document, Behrens says, “It is amazing that the Code has stood the test of time as business has evolved and as actuaries are taking on so many new roles. This is a testament to the careful work of the original JCCPC. The Code remains durable and relevant because the precepts are principles-based, allowing them to apply to evolving types of work and changing applications. While the work has changed, our professional responsibilities have not. … The principles-based nature of the precepts has allowed the Code to remain relevant for 25 years and counting.”
Slotznick also commends the writers of the Code for its principles-based nature and enduring value. “The Code covers areas where potential issues could arise, but the wording is broad enough to fit evolving practice,” she says.
“That flexibility is exactly why it still fits a profession that looks very different than it did in 2001,” Yeung says.
Upholding the Code: The Role of the ABCD
The Actuarial Board for Counseling and Discipline (ABCD) was established within the Academy and launched in 1992 with two main functions: 1) to provide counseling to actuaries to help them uphold standards of conduct, practice, and qualification, and 2) to investigate potential violations of the Code of Professional Conduct and, where warranted, recommend discipline to the actuarial organizations to which the actuary belongs. The ABCD itself does not impose discipline—that authority lies with the membership organizations. (See also, “Tales from the Dark Side: What Would You Do?”)
These two functions are vital to the profession. The counseling function—very rare, if not unique, among professions—offers a confidential sounding board to actuaries facing difficult professional issues. ABCD members fielding requests for guidance help actuaries think through issues through the lens of the Code and other applicable standards—whether qualification or practice standards—and help them reach a conclusion about what their next steps should be. The goal of the counseling function, according to a person involved in setting up the ABCD, was to prevent the need for discipline by helping actuaries avoid violations in the first place.
The second function—investigating potential violations—shows that the profession takes the responsibility for enforcing its own standards seriously, thereby helping maintain the public’s trust in the profession. However, the ABCD must rely on individual actuaries to help fulfill this second function. Precept 13 requires actuaries to report “apparent, unresolved, material” violations of the Code to protect the public and the profession against poor actuarial work. Though it may be uncomfortable to do so, you have an obligation under Precept 13 to address any poor work you see.
Just for Fun: What’s Your Favorite Precept?
- Nancy Behrens: I actually have two! The first and the last. Precept 1 because it sets the tone for the entire Code of Professional Conduct: “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.” We can view the other 13 precepts as spelling out some specifics of what Precept 1 requires. Precept 14 because, while I was a member of the Actuarial Board for Counseling and Discipline (ABCD), it was almost comical to see the lengths to which some actuaries would go to avoid cooperating with the ABCD. I wish that everyone would view the ABCD process not as onerous but as an important part of maintaining the reputation of the actuarial profession and our status as a self-regulating profession.
- Lisa Slotznick: Annotation 1-1, Skill and Care, says it all.
- William Hines: Precept 8 is my favorite. It is focused on control of the actuary’s work product. Throughout my career, I have produced financial projections for blocks of insurance products for a given purpose. I have often been asked if those projections could be used for another purpose for which they were never intended. Sometimes people have taken my projections and used them for another purpose without my knowledge. Precept 8 provides excellent direction for actuaries on their responsibility to discourage unintended and misleading use of their work product. That is important for any actuary in any capacity.
- Yukki Yeung: Precept 1, integrity. It is the foundation everything else rests on. Competence, communication, and control of work products all matter, but they only mean something if integrity comes first. To me, it captures the whole idea in one word: Do the right thing, especially when no one is watching.
The Code in Action
- Nancy Behrens: When I was still working, I kept the small blue Code booklet on my desk to refer to when questions arose. On more than one occasion, a member of my staff would pick it up and read the relevant precept or annotation to me to help determine the best path forward on a particular project. While I was a member of the ABCD, the first question I would ask when a member called for a request for guidance (RFG) was “What are the relevant precepts and annotations that apply to the work in question?” This often led the requestor to reach their own conclusions about whether a precept had been violated and helped me provide options and alternatives for the requestor’s next steps.
- Lisa Slotznick: The precepts of the Code that I am mindful of daily relate to integrity, performing work with skill and care, being qualified, following standards, and communicating appropriately. While the Code addresses these in the context of performing actuarial services, I keep these precepts in mind beyond the strict performance of actuarial services, particularly confidentiality and courtesy considerations.
- William Hines: Precepts 4, 5, 7, 8, and 9 have been a key focus for my work for the past 20 years. And the more I work, the more important I think they are in serving our principals. I find it very important to define what the work product is, who the intended audience is, and what role the authors played, including what they are responsible for in the report. Documentation and disclosure play a pivotal role in any actuarial work product, and those provisions of the Code help me be sure I am communicating what is important for my clients to understand about what I have done and what I have not done. I have had to turn to the Code for support a few times. The most common situation involved potential conflicts of interest, where my firm might be working with more than one potential buyer and a seller of a block of business. Precept 7 gives clear guidance on how to deal with that situation, and we have found our clients to be receptive to its provisions requiring full disclosure to all parties and having all parties agree.
- Yukki Yeung: When I assess actuarial models and processes, I lean on Precepts 1, 3, and 8 to keep my findings fair, accurate, and defensible. The Code also shapes how I teach. With my data science students at Northwestern, I try to model the mindset behind the Code: Ask the hard question, communicate uncertainty honestly, and stay aware of who your work affects. In my own work, I have had plenty of gray-area moments, especially on cross-functional teams where actuarial judgment meets business strategy, audit, and data science. In those cases, I revisit the Code and the relevant ASOPs … to make sure I am framing my work fairly and defensibly. Sometimes just rereading the precepts reinforces how I want to show up. It is less about what I must do and more about what I ought to do.
Virginia Hulme is the Academy’s assistant director, professionalism.
Endnotes
- Wildsmith, Thomas. The Academy and the Web of Professionalism— Key Elements of the Professionalism Infrastructure of the U.S. Actuarial Profession, p. 4.
- Wildsmith, p. 5.
- Awarded the Jarvis Farley Service Award in 2001 for these efforts. The Academy’s largest conference room bears his name.
- Code memorandum.
- Wildsmith, p. 7.
- Ibid.