Business Management · Characteristics of a profession and the Actuaries' Code

Ethical Dilemmas and Applying the Actuaries' Code

Updated 11 October 2026 · Fact-checked

An ethical dilemma is a situation where duties or interests pull in different directions and no option is free of cost. To solve one, identify the facts and stakeholders, find the relevant Code principles, list options, weigh consequences, choose, and document. Use the Code plus judgement, not instinct or loyalty alone.

Understand Ethical Dilemmas and Applying the Code

A profession earns trust because its members put the public interest and professional standards ahead of personal gain. The Actuaries' Code turns that idea into principles you can apply. In the exam you are rarely asked to recite the Code. You are asked to apply it to a short scenario.

An ethical dilemma arises when two or more legitimate duties clash. Typical clashes: your employer wants a favourable result but your professional view differs; a client asks you to keep something confidential but others could be harmed; you serve two clients whose interests conflict. There is often no perfect answer. Marks go for a reasoned one.

A conflict of interest exists when your own interest, or a duty to one party, could affect your judgement or advice to another. It can be actual, potential or perceived. Handling it usually means: identify it, disclose it to the affected parties, manage it (for example, separate teams or independent review), and decline the work if it cannot be managed.

Whistleblowing means raising concerns about wrongdoing or serious professional failings outside the normal line, often after internal routes have failed. Start with the least drastic effective step: raise the concern internally, escalate to senior management or the audit or risk committee, take advice from the professional body, and report to the regulator or the IAI where the matter is serious and unresolved. Confidentiality does not protect wrongdoing, but you should disclose only what is needed and keep a record. Check the exact reporting duties in the current IAI material.

Ethics versus compliance: compliance means meeting the written rules, laws and standards. Ethics asks whether an action is right even where the rules are silent or allow it. Something can be compliant yet unethical. Good professionals meet the rules and also apply judgement and integrity.

Key rules to remember

Dilemma analysis framework: Facts → Stakeholders → Code principles → Options → Consequences → Decision → Document; Use this order for any scenario question. It is a method, not an IAI-prescribed formula.
Conflict of interest handling: Identify → Disclose → Manage → Decline if unmanageable; Apply to actual, potential and perceived conflicts.
Escalation ladder for concerns: Raise with the person → Senior management or committee → Professional body advice → Regulator or IAI; Move up only as needed. Skip steps only where there is serious risk or an internal route is compromised.
Ethics versus compliance: Compliant ≠ automatically ethical; Meeting the rules is the minimum. Judgement covers what the rules do not.

How to solve Ethical Dilemmas and Applying the Code questions

Use the same sequence for every scenario question. Write each step as a short labelled point so the marker can award marks.

1Summarise the key facts in two or three lines and name the dilemma (conflict of interest, pressure, confidentiality, whistleblowing).
2List the stakeholders: clients, employer, policyholders or members, the public, the regulator, the profession, and you.
3Link to the Code: name the relevant principles, such as integrity, competence and care, impartiality, compliance, communication and speaking up. Say how each applies.
4List realistic options, including doing nothing, and note the pros and cons of each.
5Weigh consequences for each stakeholder and the risk to the public interest and the reputation of the profession.
6Recommend one course of action and justify it. Prefer the least drastic step that is effective.
7State next steps: disclose, document, seek advice from a senior colleague or the IAI, and escalate if the issue is not resolved.

Quickest way: Four-line ethics answer

When to use it: Short written parts worth few marks, or when you have under five minutes.

Line 1: name the issue and the Code principle at stake.
Line 2: say who is affected and what could go wrong.
Line 3: give the action: raise it, disclose it, manage it, and escalate if needed.
Line 4: state that you would document everything and seek advice before disclosing outside the firm.

Common mistakes in Ethical Dilemmas and Applying the Code

Jumping straight to reporting to the regulator
Students think whistleblowing is the most ethical answer.
Fix: Show a ladder: discuss internally first, escalate, then report externally when serious and unresolved, unless urgent risk justifies going direct.
Treating compliance as the same as ethics
Both involve rules, so they blur together.
Fix: Say that compliance meets the written requirements, while ethics also asks whether the action is right where rules are silent.
Quoting the Code without applying it
Students memorise principles and list them.
Fix: Tie each principle to a fact in the scenario and say what it requires you to do.
Always siding with the employer or the client
Pressure and loyalty feel real in the workplace.
Fix: Remember that duty to the public interest and professional standards can override instructions. Explain this and offer a constructive route.
Giving one option with no alternatives
Students look for the single right answer.
Fix: Show at least two options with trade-offs, then recommend one with reasons.
Forgetting to document and seek advice
Students stop at the decision.
Fix: Close with record-keeping, advice from a senior colleague or the professional body, and follow-up.

Worked examples

Example 1

You are the appointed actuary of an insurer. The CFO asks you to use a more optimistic lapse assumption than you think is justified, so that reported reserves fall. He says the board will accept your figure if you agree. Discuss how you should respond.

Show the solution

Facts and issue: employer pressure to weaken an assumption against your professional view. This tests integrity, competence and care, and duty to the public interest.
Stakeholders: policyholders (security of benefits), shareholders, the board, the regulator, you and the profession.
Code link: your advice must be honest and based on sound judgement. You must not mislead, and you must not let pressure override your professional view.
Options: (a) agree and comply, which risks misleading users and breaching standards; (b) refuse and explain with evidence; (c) offer a documented range or sensitivity, with a clear statement of your best estimate; (d) escalate if pressure continues.
Weigh: option (a) harms policyholders and the profession's reputation. Option (b) or (c) keeps your independence while staying constructive.
Decision: keep your best-estimate assumption, support it with experience data, and show the effect of the CFO's assumption as a sensitivity only if it is clearly labelled as less supported.
Next steps: record the discussion, brief the board or audit committee, and take advice from the IAI if it persists. Escalate to the regulator if the reserves would be materially misstated and the issue is unresolved.

Answer: Do not adopt the assumption. Give your supported best estimate, explain it, document the exchange, escalate within the company if pressured, and report externally only if a material misstatement remains unresolved.

Example 2

An actuary is asked to advise a pension scheme's trustees on funding. Her firm also advises the sponsoring employer on its own financial planning. Identify the conflict of interest and say how she should manage it.

Show the solution

Identify: the trustees want a prudent funding plan, while the employer prefers lower contributions. Her firm advises both, so the conflict is actual or at least potential.
Code link: impartiality and integrity, and duty to act in the best interests of the client she is advising.
Stakeholders: trustees, members, the employer, her firm and the profession.
Step 1: disclose the dual role to both trustees and employer in writing, and get informed consent.
Step 2: manage it, for example by using separate teams and information barriers, and have an independent peer review of the advice.
Step 3: if she cannot give impartial advice, decline one of the engagements.
Step 4: record the decisions and keep reviewing as circumstances change.

Answer: There is a conflict between the trustees' and employer's interests. She should disclose it, put safeguards in place such as separate teams and peer review, and decline one engagement if impartial advice cannot be assured.

Exam tips

Always use a short labelled structure: issue, Code principle, stakeholders, options, recommendation, next steps.
Tie every Code principle to a specific fact in the scenario. Generic lists earn few marks.
Offer a graded response. Examiners reward proportionate action, not dramatic reporting.
For MCQs, watch for answers that ignore the public interest or that jump to the most extreme step.
Link to related topics, such as confidentiality and fiduciary duty, when the case involves information or advice to two parties.

Practice questions from Characteristics of a profession and the Actuaries' Code

Ethical Dilemmas and Applying the Code in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

Ethical Dilemmas and Applying the Code: frequently asked questions

How do I answer an ethics case study question in the actuarial exam?

Follow a fixed sequence: identify the issue, list stakeholders, apply the relevant Code principles, weigh options, recommend one action and state next steps. Refer to the facts in the scenario at each step. Aim for a balanced, reasoned answer.

Does an actuary have a duty to report wrongdoing?

Actuaries must be ready to speak up about serious wrongdoing or professional failings. The usual path is internal escalation first, then the professional body or regulator if the matter is serious and unresolved. Check the exact duties in the current IAI Code and guidance.

What is the difference between ethics and compliance for actuaries?

Compliance means following the written laws, rules and standards. Ethics asks whether the action is right, including where rules are silent or permit it. You need both.

How should an actuary handle a conflict of interest?

Identify it, disclose it to those affected, manage it with safeguards such as separate teams or independent review, and decline the work if it cannot be managed. Record what you did.