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Foundations of Casualty Actuarial Science

8) Discuss the concept of Enterprise analysis.

Ans. With Static Analysis, each component of the insurer's
operations were examined separately. Reserving
actuaries produced reserve indications, and financial
analysts estimated investment returns.

Each component was treated separately in monitoring
the business setting plans, company's overall
performance, and formulating the corporate strategy.
Rising inflation would raise the reserve indications, rising
interest rates would depress the values of bonds,
mortgages, and CMOs.

Interest rates, and inflation rates often move in tandem,
i.e reserving risks and investment risks are interlinked.
Economic conditions, such as inflation rates or GNP
growth, affect numerous aspects of the insurance
enterprise. Investment returns are interwined with
interest rate risks, and underwriting returns are
threatened by inflation risks.

Dynamic financial analysis begins with the basic

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