Stephen P. Lowe, James N. Stanard "An Integrated Dynamic Financial Analysis and Decision Support System For a Property Catastrophe Reinsurer"
ABSTRACT: This paper describes the dynamic financial analysis model currently being used by a property catastrophe reinsurer to manage its business, The model is an integral part of the day-to-day operations at the Company, and is used as a decision making tool in the underwriting, investment, and capital management processes. The paper begins by describing the framework that the Company uses for risk management. This includes a classification of the risks facing the Company, which is used to define and prioritize their implementation in the model. Also included is a description of the conceptual approach the Cornpany takes to evaluate the tradeoff between risk and return. The paper then goes on to describe the structure and operation of the dynamic financial analysis model and provides examples of its use at the Company, along with illustrative examples of the various types of output it produces.
KEYWORDS: Asset/Liability management; Capital adequacy; Dynamic financial analysis; Expected policyholder deficit; Modern portfolio theory; Property catastrophe reinsurance; Risk management; Simulation models; Underwriting cycles.