Understanding Risk and Value Creation in Insurance

Foreword DFA – a concept and buzzword energizing actuaries and other insurance professionals in the 1990s! The general hope then was that such models would accurately describe the complexity of the risky environment in which insurance and reinsurance companies operate. After the first few years, however, expectations began to recede: people realized it would be a Herculean task to consider all influences deemed relevant. In recent years, however, the pendulum has begun to swing back: financial and actuarial competencies are increasingly converging, and the power of today's computers enables even highly complex simulations in a reasonable amount of time. DFA finally comes to reality, and expectations about what it can do have become much more realistic. Dynamic financial analysis is no longer conceived of as a black box, nor its answers as the ultimate truth. Instead it is viewed as a means of gaining insight and understanding, of reducing uncertainty and mastering complexity. Today, DFA is becoming what it should be: a support for management for making informed decisions, not a decision maker itself. We should take it for what it is: a flight simulator – not an autopilot! Enjoy your flight!