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Widely adopted by general insurance actuaries, dynamic financial analysis (DFA) has been growing rapidly in popularity among the industry's decision makers, from business managers to capital providers and regulators. DFA models simulate a broad range of risk scenarios including underwriting risks, asset risks and operational risks to create a comprehensive risk profile for the business.
DFA applications provide a number of benefits, including:
- Contribution to key strategic decisions such as reinsurance purchasing, entering new markets or changing business mix
- Modelling virtually any type of risk such as operational risk, reinsurance credit risk or asset risk
- Modelling capital requirements and returns on risk-adjusted capital
- Allocating capital between classes of business and determining appropriate levels of risk diversification credit
- Assessing solvency from the viewpoint of regulators, rating agencies and other interested parties
