Do Ethics matter?

José Mendinhos
AAE Board member


Traditionally – in the teaching of actuarial sciences and in actuarial associations – great emphasis is placed on technical aspects (which are indispensable), but not so much on ethical ones. More recently, aspects related to conduct have seen their importance grow. But do ethics matter?

Here is one (among several) example:


1.  Management of public companies

Portugal Telecom (PT) was one of the star companies in Portugal. The only one that was listed on Eurostoxx 50, with a large presence in Angola and Brazil, and important technological investments (the first pre-paid mobile phone, for example).  Its managers received several management awards.


Well, according to public knowledge, PT invested 900 million euros in commercial paper from Grupo Espírito Santo Holding, a shareholder with 10% of PT, apparently in contrast to its own investment policy.


The result was that it led the company to a very bad financial situation, which was commonly considered to be hastily sold. Apparently, some prominent Directors of the company had private agreements with Espirito Santo Group for which they received large amounts of euros, transferred into offshore accounts and for what they have been prosecuted by the public prosecutor and by the securities market authority (CMVM)!


An astonishing example of lack of ethics is a listed company in which some of its most influential directors have private and confidential agreements with a shareholder which influenced their decisions. Compromising the interests of the company and of its shareholders ultimately led the company to a sharp fall.


Much more damaging than any technical incompetence, the lack of ethics can cause the collapse of any great company!


2.   The actuarial profession

Actuaries have traditionally played a key role in calculating insurance premiums and – most importantly – provisions, as well as pension fund liabilities. With the SII regime, they too, have a decisive role in determining SCR.


These are (among others) functions of critical importance for customers and fund participants as well as for shareholders of insurance companies and DB pension plan sponsors. For this reason, they may be subject to undue pressure. The temptation to press them to change the result of their professional judgement can be great.


If you do not resist the pressures, you enter a path from which you can no longer escape. People will use that first weakness to continually pressure you and you will lose all control over the results of your work. You will lose the respect of your superiors and colleagues.


If you do not resist pressures, you would be violating almost all the principles of our Code of Conduct:

  1. Integrity
  2. Competence and Care
  3. Compliance
  4. Impartiality
  5. Communication


In particular, Impartiality (“An actuary must not allow bias, conflict of interest or the undue influence of others to override professional judgment”), is the principle which is always hurt when conflicts of interest influence our output.


To avoid this, it is essential to substantiate in detail the options you have made for the chosen methodology and the assumptions used, based on the available data and actuarial standards.


I do not underestimate the consequences – which can be quite unpleasant – of resisting undue pressure. But imagine what would happen if a fund or an insurer went bankrupt and could not pay pensions or indemnities because your provisions were undervalued!


This would not be an unprecedented situation and the actuary’s responsibility would be unavoidable. Worse than resisting the pressures would be to have the actuary’s reputation destroyed and his or her professional career ruined; not to mention the problems of conscience the actuary would have for the rest of his or her life.


Stay strong and stick to the code of conduct!


This blog is written in a personal capacity.

April 2020

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