Patrick C. Jensen, FCAS, Senior Manager, Deloitte & Touche LLP
Jan Lommele, Principal, Deloitte & Touche LLP
John M. Lummis, SVP and CFO, RenaissanceRe Holdings Ltd.
Moderator: Mitchell J. Cole, Principal, Towers Perrin, New York 

 Tuesday, November 16th, 9:00 - 10:15 p.m.
 

"Insurers Embrace Dynamic Financial Analysis"

Dynamic financial analysis--an integrated modeling approach to corporate planning that considers everything that affects an organization and how those factors are interrelated--is gaining converts among insurers.

About 25% of property/casualty and life/health insurers currently use dynamic financial analysis, but 75% say they will begin to use it within the next two years, said Patrick C. Jensen, senior manager, Deloitte & Touche LLP. Speaking Tuesday at the Ninth World Captive and Alternative Risk Financing Forum, Jensen said the computer-driven analysis system, which creates tens of thousands of possible scenarios for future performance, represents "the next evolution of corporate planning."

Insurers use dynamic financial analysis to plan capital allocation and determine capital adequacy and the potential for achieving planned results, Jensen said.

The system allows insurers to examine various risk scenarios, ranging from currency to catastrophes. Then it considers possible economic variances and reasonable business decisions a company might make.

Based on the results, a company may determine that it needs to purchase more catastrophe reinsurance or balance its asset portfolio. Typically, a company should perform such an analysis annually, said Jan Lommele, a principal at Deloitte & Touche.

Modeling systems can be costly. Bermuda-based RenaissanceRe Holdings Ltd. spent $15 million over six years to build a proprietary catastrophe modeling system, said John M. Lummis, senior vice president and chief financial officer.

However, insurers that don't want to take on the expense of developing their own models can rent a commercial modeling system, Lommele said.