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October 17th - 19th,
1999
"Experts: Dynamic Financial Analysis Is Remaking
In fact, dynamic financial analysis is difficult to perform through Internet connections, the experts said at "Continuing the E-Volution," A.M. Best Co.'s 12th annual Insurance Information and Technology Conference. That's because it still takes powerful mainframe computers four to five minutes just to perform the thousands--sometimes millions--of calculations necessary to yield the statistical results that are at the heart of dynamic financial analysis, said Stephen Philbrick, of Swiss Re Investors. In dynamic financial analysis, actuaries and financial experts "stress test" a property/casualty insurer's financial position by plugging in a host of possible underwriting, investment and economic scenarios to determine the most probable outcomes. Those are then plotted along risk-reward graphs, with the outcomes that best balance risk vs. reward defining what's called the "efficient frontier." "Once you become comfortable with the range of outcomes, then you've got a strategy," said Brett Price of SS&C Technologies Inc. "DFA becomes like the virtual wind tunnel for the aerospace industry." "You really have to go into tens of thousands or hundreds of thousands of scenarios," said Manuel Amalgro of Tillinghast-Towers Perrin. However, the Internet is helping by making it easier for companies to submit underlying data, Price said. As computing costs continue to fall and communications become even faster, Amalgro predicted that the underlying data used to develop the scenarios will be broadened to include nonfinancial sources of risk, such as the entry of a new competitor in a market or the rise of new Internet policy-distribution systems.
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Virtual Profits: DFA and 
The only insurance-oriented technology
outpacing the transforming power of the Internet may be computer-based dynamic
financial analysis, three insurance experts who are developing that field told
insurers.