# Cross Examination of an Actuary

An actuary is not an economist. Actuaries are not experts in predicting future economic events based on past economic facts. An actuary is a mathematician who performs actuarial calculations usually in connection with insurance companies and pension plans. They determine the present value of annuities and the cash surrender value and the cost of premiums for insurance policies. When an actuary is called to testify for the defense in a Wrongful Death case his job is to prepare a report which minimizes the present cash value of the deceased wage earner’s lifetime earnings.

To effectively cross examine an actuary the plaintiff attorney must emphasize that the actuary has no economic expertise. The attorney must be able to establish that the assumptions that the actuary made in his report regarding future wage growth rate and the future money growth rate were arbitrary assumptions taken only for the purpose of decreasing the present value of the wage earners lifetime earnings.

When an actuary prepares his report on the plaintiff’s decedent, he is not economically analyzing the historic wage and money growth rates and then predicting fairly how these two trends will affect the wage earners gross future earnings. He cannot do this. He is not an economist. The actuary simply performs a series of calculations using the highest possible money growth rate (this is also called the inflation rate or interest rate) and the lowest possible wage growth rate (this is also called “earnings growth rate”). It is imperative that the attorney understands that to choose a specific figure for the future “money growth rate” and for the future “wage growth rate” requires an economic theory and an economic analysis. An actuary cannot arbitrarily choose these rates to effect a desired result.

Car accident attorneys must be clear that in calculating the present value of lifetime earnings we have these two opposing factors, the wage growth rate and the money growth rate. If we assume that the wage growth rate is eight percent and that the money growth rate or the inflation rate is eight percent then there is no discount and no reduction of a worker’s gross future earnings. To obtain the present cash value of a worker’s lifetime earnings one simply multiplies an individuals salary with fringe benefits times the number of years the worker was expected to continue to work. This is what a plaintiff normally wants to achieve. Defendants would like to have a higher money growth rate or inflation rate and a lower wage growth rate and then they can reduce the worker’s gross future earnings by this discount rate (money growth rate less wage growth rate). Defendants would like to look at the late 1970’s and the high inflation rate we experienced at that time.

The actuary must make reasonable assumptions of the wage growth rate and the money growth rate when he prepares a pension plan for a client. These “reasonable” assumptions are usually far different from the assumptions he makes in the analysis of a deceased wage earner’s future earnings. If you wish to establish this inconsistency, subpoena the Actuarial Valuation Reports prepared by the actuary or his firm for their largest clients’ pension plans.

The cross examination which follows was conducted after the defense actuary sent the plaintiff attorney a very adverse report styled, “The pecuniary loss of the survivors of the deceased worker” where he found the present value of the pecuniary loss to be only fifty (50) percent of what the plaintiff economist found. (Approximately $340,000 as opposed to $680,000)