Industry News

In March 2019, the Actuarial Standards Board (ASB) released its second exposure draft of a proposed actuarial standard of practice (ASOP) titled, Setting Assumptions.  The proposed ASOP will apply to actuaries when performing actuarial services that require the setting of assumptions for which the actuary is taking responsibility, giving advice on setting assumptions, or assessing the reasonableness of assumptions set by others.

Although certain practice-area assumption-setting standards exist (i.e., ASOP No. 27, Selection of Economic Assumptions for Measuring Pension Obligations and ASOP No. 35, Selection of Demographic and Other Noneconomic Assumptions for Measuring Pension Obligations), disparity still remains in current guidance.   To address these gaps, the ASB concluded that it would be useful to issue a standard on setting assumptions for all practice areas that will supplement the current guidance.  Consequently, in January 2016, the ASB created a multi-disciplinary task force under the direction of the General Committee to draft a standard on assumption setting for all practice areas.

In December 2016, the ASB issued the first exposure draft.  There were 45 comment letters received and considered in making changes that are addressed in the second exposure draft.  Some of the most significant changes in the second exposure draft include, among others, revisions to the:

Scope

• Indicate that this standard applies to actuaries “when performing actuarial services that require the setting of assumptions for which the actuary is taking responsibility, giving advice on setting assumptions, or assessing the reasonableness of assumptions set by others;”
• Indicate that when an actuary is assessing the reasonableness of assumptions set by others, the actuary should follow the guidance in Section 3 to the extent practicable;
• Clarify which ASOP will govern if another ASOP provides guidance on setting assumptions;
• Eliminate the concept of using assumptions in an actuarial work product; and
• Eliminate the reference to the selection of methodology and the matching of assumptions to the selected methodology.

Definitions

• Delete the term “entity;”
• Modify the terms “data” and “information date” to be consistent with those in other ASOPs; and
• Add the terms “assumption” and “prescribed assumption set by another party.”

According to the exposure draft, “Setting assumptions includes, but is not limited to, activities that may variously be referred to as developing or selecting assumptions, and may include an analysis of data or experience, industry studies, trends, economic forecasts and other analyses, as appropriate.”

The comment deadline for the second exposure draft is July 31, 2019.

The memo and ED are available here.