Page 54 - ic92 actuarial

The Insurance Times

financial, economic, and business assumptions. This
perspective is a great advancement over static analysis,
but we see the flow of reasoning backwards.

We begin with reserving risk and investment risk , and
study the underlying factors affecting each of them.
Some of this factors like interest rates and inflation rates
are interlinked. When we analyse the enterprise as a
whole, we have to examine both the risks simultaneously.
Insurance executives however, do not think solely in
terms of risk correlations and covariance matrices, but
they think in terms of economic and business reality.

So dynamic financial analysis inverts the questions,
placing the scenario first. For e.g, it asks " if there is a
recession, or an underwriting downturn, what would be
the effects on reserves, underwriting, and investments
?" . Financial models now create the links, breaking
recessions or underwriting cycle movements into their
component pieces, and examining the effects on
insurance operations.

Technical actuarial and financial issues that are

Website: www.bimabazaar.com Call: 033-22184184 /40078428 54

Copyright@ The Insurance Times. 09883398055 / 09883380339