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IAI Actuarial Core Principles · Business Management · Skills and knowledge for working as an actuary in financial services

Aarav, an actuary at Himalaya Insurance, is also appointed as Appointed Actuary-type adviser to the board and is asked to give an independent view on the adequacy of reserves. Management proposes linking his annual bonus entirely to the reported solvency ratio. Which concern is most relevant to his professional role?

The bonus link may create a conflict of interest that threatens the objectivity of his advice, so it should be identified and managed or disclosed. Independence is central to the actuary's role, and pay tied to the very result being assessed could bias judgement.

  1. AThe bonus structure is irrelevant because actuaries are exempt from conflicts of interest
  2. BThe link may create a conflict of interest that threatens the objectivity of his advice, so it should be identified and managed or disclosedCorrect
  3. CHe must refuse all remuneration from the insurer
  4. DThe structure is acceptable as long as the solvency ratio exceeds the regulatory minimum
  5. He should keep the conflict private to protect the insurer's confidentiality

Explanation

An actuary giving independent judgement must guard against pressures that bias advice. Pay tied wholly to the outcome he is assessing creates a conflict, which should be identified and managed or disclosed. Exemption, refusing all pay, or concealing the conflict is not what professional standards require.

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