IAI Actuarial Core Principles · Business Management · Professional negligence
Rohan, an actuary at a Chennai consultancy, signs off a model that omits a known risk of mass lapses. Before the report is issued, a peer-review comment flagged the omission, but Rohan ignored it because the risk seemed unlikely. The risk later materialises, causing loss. In assessing breach, which factor most strongly supports a finding that Rohan fell below the required standard?
The strongest factor is that the risk was foreseeable and had been flagged, so a reasonably competent actuary would have addressed or disclosed it. Breach is assessed on foresight and reasonable precautions, not on hindsight or the size of loss alone.
- AThe loss was large in rupee terms, regardless of what was foreseeable
- BThe risk was foreseeable and was flagged, so a reasonably competent actuary would have taken precautions or disclosed the limitationCorrect
- CThe risk did in fact materialise, which alone proves breach
- DThe consultancy had no written policy on peer review
- Rohan was not personally paid for the specific report
Explanation
Breach is judged by what a reasonable actuary would do given foreseeable risk, not with hindsight. Because the risk was known and flagged, ignoring it without precaution or disclosure points to breach. Loss size, materialisation alone, internal policy gaps or payment do not establish breach.
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