STUMP » Articles » Actuarial Stuff: Mergers, Bootings, and Secrecy (oh my!) » 28 September 2018, 15:10

Where Stu & MP spout off about everything.

Actuarial Stuff: Mergers, Bootings, and Secrecy (oh my!)  


28 September 2018, 15:10

I am about to do a dive into actuarial doings, some of which has to do with pensions, a lot of which doesn’t, and some things that even most actuaries don’t care about.


Don’t say I didn’t warn you.


This basically came out of nowhere. Well, not nowhere.

First, the announcement from the SOA president:

Stronger As One: The Casualty Actuarial Society and Society of Actuaries Explore a Combination

The environment in which actuaries practice continues to change. From predictive analytics to technology that transforms how we work, there are new opportunities for our profession to impact business and societal issues. We also face competitive challenges from other professions related to data science that seek to benefit from these opportunities. The CAS and SOA Boards of Directors recognize that changes will continue, and that we need to lead – not react – to maintain our competitive edge, embrace new opportunities, and better serve our current and future members.

Together we agreed to explore a combination of the CAS and SOA into one new professional organization that has the scale and resources to support our members’ efforts to shape and grow the areas in which we practice.

Our Boards are currently conducting their due diligence to best understand how we can work together. While we are excited for the many opportunities a combination will offer our profession, we must pass several major milestones before an official combination of the CAS and SOA could happen. Those milestones include a formal presentation of the combination agreement in early October, votes by both Boards by mid-November, and member votes from both organizations in early 2019.

That bolding is in the original announcement.

The letter posted at the CAS website has more items on it:

New opportunities: More resources would be deployed to place our members at the forefront of leading edge developments in evolving fields and opportunities – especially predictive analytics. This allows us to better serve our North American members while expanding our relevance and growing internationally.

Unified education system: Leveraging the best practices and innovations from both organizations, actuarial students would learn a common set of core fundamentals. Members and candidates could access rigorous and specialized education tracks and professional development opportunities to prepare them better for new opportunities.

Enhanced diversity of thought and efficiency to serve members: Working together to address areas of common interest from different perspectives and avoiding duplicative efforts allows us to operate more efficiently and deploy improved resources to enhance the member and candidate experiences.

Stronger global brand for the actuarial profession: A combined organization would increase the value of our actuarial credentials and allow us to speak with one voice on actuarial education and research, providing more clarity for the direction of our profession.

So, the SOA (which covers Life/Health/Pensions) has been looking to absorb the CAS (the Property/Casualty side) for decades. There was a hostile attempt in 2010/2011, and if you want that whole sordid history, check this out:

SOA vs CAS and AAA Timeline from meepbobeep

(go to the link if you can’t see the slides)

That post is from January 2015, and there was something of a detente by then.

But we still didn’t have joint exams after that break, and the enmity has mainly moved to the sphere of the AAA (more on that in a moment.)

I don’t think there will be any trouble getting the SOA members to go along with this. There are some sticking points for the CAS side… I think it will be a tough sell, and they’re really going to have to sell it. I will leave this here for now.




This happened back a little bit, but I had been busy and, well, there’s no time limit on this.

Timothy Sharpe is a pension actuary, and he’s shown up in this blog a few times.

Now all sorts of stuff went on, and Tim Sharpe thought it a good idea to post at the Actuarial Outpost (and yes, I have to link to a google search, because he managed to get that thread deleted. Boo hoo.

Oh wait, here’s a snapshot of one page.

And also, Tim Sharpe shows up in this NYT article from 2015: Bad Math and a Coming Public Pension Crisis

When Jim Palermo was serving as a trustee of the village of La Grange, Ill., he noticed something peculiar about the local police officers and firefighters. They were not going to live as long as might be expected, at least according to pension tables.

After Mr. Palermo dug into the numbers, he found that the actuary — the person who advises pension plan trustees about how much money to set aside — was using a mortality table from 1971 that showed La Grange’s roughly 100 police officers and firefighters were expected to die, on average, before reaching 75, compared with 79 under a more recent table.

The four years are significant beyond any interest in macabre statistics. When actuaries calculate the numbers for a pension plan, mortality rates are a powerful hidden factor. If an actuary predicts the workers will live to an old age, it means they will be drawing their pensions for more years. That, in turn, means the employer should set aside more money up front, to keep from running out later.
And not just in La Grange. The actuary, Timothy W. Sharpe, had the biggest market share of police and fire pension business in Illinois.

“I think it’s a moral hazard,” Mr. Palermo said.

Mr. Palermo, who works in financial services, determined Mr. Sharpe was using a table from 1971, which tracked a group of people born from 1914 to 1918, who retired from 1964 to 1968. It is seldom used these days. A table from 2000 is considered more accurate, and in 2014 the Society of Actuaries issued an even newer one.

A few months later, his complaint was written up in a village manager’s report and distributed at a public meeting. Mr. Palermo had accused Mr. Sharpe of making statements that were “frequently erroneous and incomplete,” it said. He had accused Mr. Sharpe of misleading the village board and persuading it to incorporate the wrong mortality assumptions into the local tax levy.

The news media pounced.

The village manager’s report strongly suggested that Mr. Palermo was a troublemaker with few allies in the local government. It said he had acted on his own and that most of the village board was on Mr. Sharpe’s side.

It also said that Mr. Sharpe had refused to supply any numbers until the complaint was resolved, so the village had no numbers on which to base the coming year’s tax levy. It was about to miss a state deadline.

I also show up in the article:

“Actuaries make a juicy target,” said Mary Pat Campbell, an actuary who responded to the board’s call for comments.

She expressed concern that elected officials were using actuaries to lend respectability to “questionable behavior” like funding pensions with borrowed money, picking risky investments and “enacting benefit improvements based on lowballed costs.”

Anyway, a few different people filed complaints with the Actuarial Board of Counseling and Discipline about various aspects of Sharpe’s work.

In January 2018, this came out:

The American Academy of Actuaries (“Academy”), acting in accordance with its Bylaws, has reviewed the findings from the Actuarial Board for Counseling and Discipline (“ABCD”) and decisions by both a Hearing Panel and an Appeal Panel of the Joint Discipline Council (“JDC”) regarding Timothy W. Sharpe, MAAA, EA. The Academy hereby publicly reprimands Mr. Sharpe for materially failing to comply with Precepts 1, 2, 3, and 4 of the Code of Professional Conduct.

The ABCD and JDC concluded that Mr. Sharpe materially violated Precept 1 of the Code, which requires actuaries to “act . . . with . . . competence.” Annotation 1-1 amplifies that provision by stating that actuaries must “perform Actuarial Services with skill and care.” Specifically, the ABCD and JDC found that in performing a 2011 Other Postemployment Benefits Other Than Pensions (“OPEB”) valuation for the Village of Melrose Park, Illinois

(the “Project”) Mr. Sharpe failed to confirm whether vision and dental benefits were included in the premium rates that he used in his work and whether surviving spouse benefits were also covered by the plan.

So that’s about retiree dental coverage, not exactly a blockbuster, and it was just a public reprimand.

But then, this dropped in August:

The American Academy of Actuaries (“Academy”), acting in accordance with the Academy’s Bylaws, and after consideration by a Disciplinary Committee and an Appeal Panel, has reviewed the findings and a recommendation from the Actuarial Board of Counseling and Discipline (“ABCD”) regarding Timothy W. Sharpe. Based on the decision of the Disciplinary Committee, which the Appeal Panel affirmed, the Academy suspends Mr. Sharpe from membership for a period of two years for materially failing to comply with Precepts 1, 3, 4, 10, and 14 of the Code of Professional Conduct in connection with valuations he performed for several municipal police and fire pension plans in Illinois.

Precept 1 requires that an actuary “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.” Annotation 1-1 amplifies that duty by requiring an “Actuary to perform Actuarial Services with skill and care.” The Disciplinary Committee and Appeal Panel concluded that Mr. Sharpe materially violated Precept 1 on these valuations in the following respects:

Making inappropriate adjustments to published mortality tables for these valuations in violation of ASOP No. 35;
Failing to disclose adequately in his valuation reports the mortality tables used and the modifications to them in violation of ASOP No. 41.

So that was a bit interesting. The NYT article referred to mortality assumption issues, remember.

In any case, suspensions are not necessarily forever, but the discipline record is.

As a result of this suspension, an Illinois official put out the following press release:

on Wednesday, August 29, 2018
East Dundee, IL – In light of the American Academy of Actuaries suspending Timothy W. Sharpe from membership for a period of two years for materially failing to comply with parts of its Code of Professional Conduct, Representative Skillicorn is calling for a recalculation and review of every Illinois pension Mr. Sharpe was involved in.

Skillicorn stated, “You cannot begin to address a problem if the magnitude isn’t fully understood. With the suspension of Mr. Sharpe, it is imperative that we conduct a review and recalculation of every pension he was involved in. The state of Illinois carries a massive unfunded pension liability that is estimated to be anywhere from $150 billion to $250 billion affecting our credit rating, which is just barely above ‘junk’ status, while many municipalities are severely underfunded as well. The public has a right to know if the situation is even worse.”

Just a note: when I talk about Illinois pensions, I’m generally looking at the statewide pension systems, including IMRF, or the Chicago-specific ones.

But all these towns in Illinois have separate pension funds for their public safety officers, that are not a part of any state plan. And each can hire its own actuary. And I suppose each can use (or had been able to use in the past) their own valuation assumptions.

With public safety officers, the argument has been that they have worse mortality than other classes of employees covered by DB pensions.

Well, the SOA has an experience study on public plan mortality, and here is a comparison of these experience tables against assumptions actually used.

I will cover that analysis at a later date.


Now, this is an interesting one. The SOA & CAS are “educational” actuarial bodies — they provide the exams, credentials, etc. — and while they are U.S.-dominated, they operate internationally.

Then there’s the AAA (American Academy of Actuaries), which is the U.S.-only organization of actuaries, and it is usually the body that testifies to Congress, works with regulators, etc.

There’s the ASB – Actuarial Standards Board – which sets the ASOPs (Actuarial Standards of Practice).

At the beginning of September, two actuarial organizations were removed from picking members of the ASB:

Sept. 7, 2018

On Tuesday, the Academy’s Board of Directors, after careful deliberation, voted to amend the Academy’s Bylaws to change the composition of the Academy’s Selection Committee. This committee is established by the Academy Bylaws and appoints members of the Actuarial Standards Board (ASB) and the Actuarial Board for Counseling and Discipline (ABCD), both of which are housed within the Academy. Effective immediately, the Selection Committee will be composed only of the presidents and presidents-elect of the Academy, the Society of Actuaries, and the Casualty Actuarial Society.

The Board’s vote was the result of a careful process that began last year and continued over many months with an in-depth study of the functioning of the Selection Committee by the Academy’s Strategic Planning Committee, followed by deliberations of the Executive Committee and ultimately the full Board. During this process the Strategic Planning Committee, Executive Committee, and Board all considered and evaluated a wide range of alternatives. The change adopted by the Board is intended to improve the effectiveness of the committee, reduce conflicts of interest, and safeguard the important roles that the ASB and ABCD play for the U.S. actuarial profession and for the public.

A detailed discussion of the matter has been provided in letters to the two organizations whose officers will no longer participate on the Selection Committee—the ASPPA College of Pension Actuaries (ACOPA) and the Conference of Consulting Actuaries (CCA). We are sharing those letters with the Academy’s full membership: the letter to ACOPA is here and the letter to CCA is here.

While we encourage you to read the full detail provided in those letters, we want to emphasize two points:

We continue to welcome the participation of all members of the profession in the ASB and ABCD process. The Academy’s Bylaws continue to require that both entities serve the entire U.S. actuarial profession, and we are fully committed to that.

The Board believes that ACOPA and CCA perform important functions for their members. Those functions, which include advocating for the commercial interests of their members and their members’ clients, are highly valued by many in the profession. They are, however, incompatible with maintaining the independence and objectivity of the ASB and ABCD. Preserving this independence is vital to the public’s confidence in the U.S. actuarial profession’s ability to regulate itself.

In particular, these two groups have many actuaries who do public pension valuations, who would rather not ASOPs surrounding public plan valuation change so that they would have to use much lower valuation rates to show a “risk free valuation” of the liability.

Letter to the CCA

Letter to ACOPA

In the Actuarial Outpost thread, I noted that almost all members of CCA and ACOPA are members of at least one of the AAA, CAS, and SOA.

John Bury’s remarks:

Commercial considerations should definitely be eliminated from setting actuarial standards but I would note that most ACOPA members work on well funded private-sector single employer plans (even if primarily due to PPA and PBGC’s need for cash) while every public plan I have seen has been signed by an AAA member. Those public plans have funded ratios (if valued at PPA rates) of about 30% and have pioneered gimmicks like open amortization while standing idly by as politicians dictate their contribution numbers.

It’s not like the public pension actuaries are going to get completely cut out — they’re still there via the AAA or SOA.

But one issue was that when you had pension actuaries via CCA and/or ACOPAAND the SOA AND the AAA – it ended up with some lopsided power distributions when it came to picking people for the ASOP development…which was an effective bar from getting any standards updated that would affect public pensions.

Well, there are draft exposures threatening to do just that:

The ASB approved exposure drafts of ASOP Nos. 4, 27, and 35 in
March 2018, with a comment deadline for the three ASOPs of July
31, 2018. The Pension Committee is reviewing comments on the
exposure drafts and making revisions. The Pension Committee
plans to present final versions of ASOP Nos. 27 and 35 to the ASB
at its March 2019 meeting, and present a second exposure draft of
ASOP No. 4 to the ASB at its June 2019 meeting.

So it should be very interesting to see where that goes.


And here’s my last actuarial brou-ha-ha (for now): the secrecy surrounding meetings of the AAA board, ASB, etc.

Back in February, actuary Karen Smith posted this at the Actuarial Outpost:

AAA: Please Let the Sunshine in!!!

Are they hiding something? I doubt it, but in a closed-door meeting the American Academy of Actuaries Board of Directors voted to close all meetings of the Committee on Qualifications and closed all Actuarial Standards Board meetings unless the chair approves the observer’s attendance. This huge change was made without warning or input from members. For actuaries to regulate themselves, there needs be transparency in the qualification and standards setting process. That is the best way to keep bias and financial interest out.

We have launched a petition drive to force an Academy membership vote to amend the bylaws to undo this policy and to permanently protect openness for standard setting. We need your help.

You can do any of the following to help:
1. Visit our website at
2. Review the attached information which includes the proposed bylaw change and the new policy
3. You can connect with me (Karen Smith) on LinkedIn
4. Have questions? Post them and I will try to answer them. I will be as transparent as possible!
5. Share with your actuarial colleagues – we need 600 signatures!

Who am I? I am a pension actuary who is a member of the SOA, CCA, Academy and ACOPA. Before they changed the meeting policy, the Academy denied me entrance to both the ASB planning meeting and Committee on Qualifications meetings. I am not usually a crusader, but we need transparency if the profession is going to continue to be self-regulated. This effort is not endorsed by any actuarial organization and I am quite certain the Academy is against it!

Note that she is represented via 4 actuarial organizations (disclosure: I’m a member of SOA and AAA, aka the Academy).

Again, I think this is something surrounding the proposed standards changes in pensions. While I think the ASOP changes are a good idea, it needs to be done in a transparent way.

There are other disputes ongoing (which I didn’t even address) about qualification standards for P/C actuaries (which was a semi-expected fallout after the SOA had tried to make its own P/C credential, and got thwarted by CAS… and maybe this will become moot with a merger between organizations, but the people questioning qualifications now are the regulators at the NAIC. Great work, guys!)

The website asking for transparency is here, and yes, I signed a petition as requested by Smith.

I got a bit saucy in the Actuarial Outpost thread:

I’m all about solutions.

They could do it as a video conference, as on Webex or GoToMeeting – wouldn’t have to pay for evil carbon-spewing air travel, recording functions are built into the software, and people could watch live (and Q&A could be disallowed or moderated). Maybe we could get some professionalism CE credit out of this. It’s for the benefit of members, after all.

But no, they really don’t want video (or audio) recordings of these meetings.

Some in the AO thought it would be boring, but I noted:

I actually read minutes/transcriptions from all sorts of governmental hearings…and sometimes blog about it

i like to live on the edge

You know me, all about excitement.


So this is what came out last week:

Update On Petition To Change Rules Governing Participation Of Guests At Academy Committee Meetings

As discussed in the August Actuarial Update, some Academy members have been asked by Ms. Karen Smith to sign a petition in support of a membership vote on changing the Academy’s rules governing the participation of guests in meetings of the Actuarial Standards Board and of the Academy’s various committees.

The Academy Board found that the current policy strikes the right balance between openness and the need for candid and robust discussion, along with the need to maintain basic decorum and prevent conflicts of interest. Indeed, since the adoption of the current policy, guests have continued to attend and participate in committee meetings. Ms. Smith presented her petition on September 13. The Academy has reviewed it and determined the petition as it currently stands is insufficient to trigger a membership vote for three principal reasons:

Not Enough Signatures: Article XV of the Academy’s Bylaws requires a written request of not less than 3 percent of the Academy’s membership. As of September 13 (the date the petition was submitted), 3 percent of the membership was 602 members. But of the 648 names submitted, 92 of the email addresses do not appear in the Academy’s membership database. One other individual is clearly not an Academy member and yet another is deceased. Four others withdrew their signatures after familiarizing themselves with the facts. That leaves, at most, 550 potentially valid proponents, well short of the number needed.

Names Not Linked to the Proposal: Those of you who are familiar with hard-copy petitions know that the subject of the petition appears prominently adjacent to the signatures. But in this case, for many of the names listed, the petition asserts support for a vote without any evidence that the individual, in fact, supports the proposal. It is impossible to accept, simply on faith, that these individuals have expressed their support.

Lack of Clarity in the Proposal Itself: The Academy has seen various iterations of the proposal to which the petition relates, but there is nothing linking the submitted signatures to specific versions of the proposal. It would have been helpful if Ms. Smith had incorporated the exact language of her proposal with every solicitation she made for support. So the Academy cannot determine, exactly, what is in fact being requested and whether all the persons supporting the petition actually support the same thing.

As mentioned in the AO thread on this, many of us use multiple email addresses for business — and some people stupidly use their employer email address, and given that many actuaries move around, it’s unsurprising there would be disparities.

But never mind that. I want you to check out this bit:

These shortcomings have been communicated to Ms. Smith with a note that she is free to attempt to correct them and resubmit her proposal. The Academy hopes she does not. And, if any members are asked to sign the petition, please familiarize yourself with the facts before you make a decision. There is clear evidence that the revised guest policy is working well; observers are welcome and are attending meetings. Continued agitation on this subject is a distraction from other important work and is a needless waste of energy and resources.

The Academy will continue to protect and preserve the open and transparent standard-setting process and the quality and integrity of the standards it produces. If you have any questions, please email

For more information, go here.

Hey guys, you know what you could do to dispell the impression that you’re trying to hide stuff? You could record it. And put it online. It’s cheap and easy. Just put them on YouTube, and if you’re concerned about comment, you can block comments on your channel and videos.

If you don’t want them that public, you’ve already got the machinery to post video on the site so that only members can see it — I know, because I access members-only stuff often enough.

Yes, I understand they want Karen Smith specifically to not attend their meetings, but one would not need to worry about exclusions if all of us non-participants in the meeting could actually see it.

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