Actuarial Standard of Practice No. 38

Using Models Outside the Actuary’s Area of Expertise (Property and Casualty)

Developed by theTask Force on Complex Models of the Casualty Committee of the Actuarial Standards Board

Adopted by the Actuarial Standards Board
June 2000
(Doc. No. 071)

3.1 When Using a Model, the Actuary Should Do All of the Following

1. Determine appropriate reliance on experts;


2. Have a basic understanding of the model;


3. Evaluate whether the model is appropriate for the intended application;


4. Determine that appropriate validation has occurred; and


5. Determine the appropriate use of the model.

3.2 Reliance on Expert
The Actuary Should Consider the Following:

1. Whether the individual or individuals upon whom the actuary is relying are experts in the applicable field;


2. The extent to which the model has been reviewed or opined on by experts in the applicable field, including any known significant differences of opinion among experts concerning aspects of the model that could be material to the actuary’s use of the model; and


3. Whether the model has been certified as having met such standards.

3.3 Understanding of the Model

Be reasonably familiar with the basic components of the model and understand both the user input and the model output, as discussed below.

1. Model Components—identify which fields of expertise were used in developing or updating the model, and should make a reasonable effort to determine if the model is based on generally accepted practices within the applicable fields of expertise. The actuary should also be reasonably familiar with how the model was tested or validated and the level of independent expert review and testing.


2. User Input—The actuary should understand the user input that is required to produce the model output. This understanding includes the level of detail required in the user input to produce results that are consistent with the intended use of the model.


3. Model Output—The actuary should determine that the model output is consistent with the actuary’s intended use of the model.

3.4 Appropriateness of the Model for the Intended Application

Consider limitations of the model, modifications to the model, and the assumptions needed in order to apply the model output.

Some additional considerations include the following:

1. The adequacy of the historical data in representing the range of reasonably expected outcomes consistent with current knowledge about the phenomena being analyzed.


2. Be aware of significant development in relevant fields or expertise.

3.5 Appropriate Validation
Refer to ASOP No. 23, Data Quality

Examine the model output for reasonableness:

1. Results derived from alternate models


2. How historical observations compare


3. Consistency and reasonableness or relationships among various output


4. The sensitivity of the model output to variations

Comments or Questions:
Paul J. Kneuer
(212) 797-2285 or paulk@holborn.com