Dynamic Financial analysis (DFA)

What dynamic “is Financial analysis” (DFA)?

• Result prognosis by means of stochastic simulation in an insurance company
• Stochastic simulations to financialeconomical cash of flow models one applies
• Maximization of the flocking getting the VALUE under consideration of an adequate Solvabilität/liquidity
• “Tests” of enterprise strategies based on enterprise value and risk
• Parameters investments, reinsurance protection, own capital funds, selling as well as macro-economic sizes are considered

The dynamic financial analysis regards an insurance company quasi from the “bird perspective” and not as usual from a certain point of view. Rather DFA pursues an integrated beginning and links “Enterprise wide Risk management” with a strategic Entscheidungsunterstützungstool. One, generally spoken, could compare DFA also with one „flight simulator for decision makers “in insurance companies. With the help of a DFA model future decisions and their effects can be simulated on the enterprise “on safe ground”. DFA addresses both investment management, Investmentstrategien, reinsurance strategies and strategic Asset Liability management.

With the dynamic financial analysis it acts around a simulation technique based on an integrated modelling for the analysis of the entire financial and risk situation of an insurance company during a defined period. DFA was developed originally within the range of the harming and accident insurance and gains today in addition, increasingly with life insurance enterprises significance. With DFA in particular the complex and interdependences between the factors affecting the result are considered. Therefore DFA supports above all also an integrated enterprise control with consideration of all factors of risk (investments, insurance engineering).

Risk analysis

Only the risks to be recognized, can be evaluated…

A condition and starting point for an efficient Risk management process is as complete an risk identification as possible. The risk identification should take place process orientated and subdivide into different risk ranges (management, purchase, manufacturing, infrastructure ranges, marketing, quality management, fire protection, industrial safety, environmental protection, EDP, transport etc.).

The technology of the risk identification should be co-ordinated with the specific risk situation of the enterprise. In particular if possible all risks should be seized and be led fast to precise and usable results.

After the risk evaluation all risks should be arranged arranged according to their financial effects and the probability of entrance in a risk inventory and/or a Risk map.

Think the unthinkable…

To the risk identification it goes quantifying the recognized risks now during the risk evaluation around or at least qualitatively to weights. During the risk evaluation one avails oneself of different instruments and methods:

• Scenario technology
• VALUE RK Risk
• ABC analysis
• Scoring models
• Risk map
• Monitoring team
• Analyzes of sensitivity
• Fuzzy Mathematics
• PML and/or MPL analyzes

etc.

An overview and a description of the methods find you in the RiskNET glossary!

During the evaluation of a majority damage risk for example the MPL (maximum Possible Loss) becomes or the PML (Probable maximum Loss) determines. For an enterprise it is importantly too experienced with which probability an individual damage height is beyond that exceeded.

In practice the probability of damage entrance is weighted frequently also qualitatively after the categories “very small”, “small”, “means”, “highly” as well as “very highly”. In particular risks regarding market loss and/or image loss can be so better illustrated.

The risk evaluation is part of the risk analysis method, those based on statistic data, systems analyzes, fault tree analyzes or analysis of expiration of incident (see RiskNET glossary) the enterprise risks to quantify. Impacts the quantitative procedures to its borders, then one avails oneself of qualitative methods and/or statements.

All realizations of the risk analysis (risk identification and – evaluation) flow either into a risk inventory or into a RiskMap (see illustration above). In compressed and clear form the risks of an enterprise are illustrated, in order to give so to the decision makers an overview of the risk situation of the enterprise and in particular the economic meaning. In this connection the goal of economical optimal security is important, i.e. security may not be the original goal of an enterprise.