CAS Working Party
on the
Public-Access DFA Model
Session C22
Pat Crowe
November 2005
Background
• Mid-1990s
• Miller, Rapp, Herbers & Terry
– Actuarial consulting firm in Bloomington, Illinois
– Joined forces with University of Illinois (Gorvett & D’Arcy)
– Created a public-access DFA model for the property-liability
industry
– Called DynaMo
• Public-Access framework provides
– Opportunity for industry peer review
– Education of actuaries regarding DFA
Literature on the
Public-Access DFA Model
• 1997 CAS DFA Seminar
– D’Arcy, Gorvett, Herbers, Hettinger, Lehmann and
Miller
• Contingencies, Nov/Dec 1997
– D’Arcy, Gorvett, Herbers and Hettinger
• 1998 CAS DFA Seminar
– D’Arcy, Gorvett, Hettinger and Walling
• 1999 CAS DFA Seminar
– Ahlgrim, D’Arcy and Gorvett
– Walling, Hettinger, Emma and Ackerman
DynaMo
Catastrophe
Generator
U/W
Inputs
U/W Generator
Payment Patterns
U/W Cycle
U/W
Cashflows
Tax
Interest Rate
Generator
Investment
& Economic
Inputs
Investment
Generator
Investment
Cashflows
Outputs
& Simulation
Results
Specific Provisions of DynaMo
• Six separate, but interrelated modules
Investments
Underwriting
Interest rate generator
Catastrophes
Taxation
Loss reserve dev.
• Multi-state
• Multi-line
• For each line of business
– New business
– 1st renewals
– 2nd and subsequent renewals
What Does This Model Do?
• Simulates results for the next 5 years
• Generates financial statements
– Balance sheet
– Operating statement
– IRIS results
• Indicates expected values and distribution
of results for any value selected
Key DFA Variables in DynaMo
•
•
•
•
•
•
Financial
Short-term interest rate
Term structure
Default potential
Equity performance
Inflation
Mortgage pre-payment
patterns
•
•
•
•
•
•
•
•
•
•
•
Underwriting
Loss freq. / sev.
Rates and exposures
Expenses
Underwriting cycle
Loss reserve dev.
Jurisdictional risk
Aging phenomenon
Payment patterns
Catastrophes
Reinsurance
Taxes
Sample DFA Model Output
P R O B A B IL IT Y
Distribution for SURPLUS /
Ending/I115
0.16
0.13
0.10
0.06
0.03
0.00
6.8
13.9
21.1
28.2
35.4
Values in Hundreds
42.5
49.7
Outputs Available
•
•
•
•
•
•
5-year projections
Balance sheets
Income statements
Loss ratio reports
IRIS tests
Others as needed
– Select any cell of spreadsheet
– Graphs and histograms
Model Uses
Internal
•
•
•
•
•
Strategic Planning
Ratemaking
Reinsurance
Valuation / M&A
Market Simulation
and Competitive
Analysis
• Asset / Liability
Management
External
• External Ratings
• Communication with
Financial Markets
• Regulatory / RiskBased Capital
• Capital Planning /
Securitization
Current Project
• Working Party on the Public-Access Model
– Sponsored by the Committee on Dynamic Risk
Modeling
– Co-Chairs: Shawna Ackerman and Rick Gorvett
• Charge: to update and enhance the publicaccess DFA model
Working Party Plan
• Phase 1: Documentation and evaluation of
the components of the existing model
(1) Interest rate and inflation generator
(2) Investment module
(3) Financial statement development
(4) Loss development and payment patterns
(5) New business
(6) Jurisdictional risk
(7) Catastrophe module
(8) Underwriting cycle
(9) Taxation
(10) Output
Working Party Plan (cont.)
• Phase 2: Identification of selected
enhancements to the model
– E.g., incorporate results from recent CAS/SOA
research project on economic and financial scenario
modeling
• Phase 3: Implementation of selected
enhancements
• Phase 4: Ultimately, consider an “open
source” framework for the public-access
model
Current Project
For additional information, or to volunteer for the
Working Party, please feel free to contact either
of the co-chairs:
• Rick Gorvett
gorvett@uiuc.edu
• Shawna Ackerman
shawnaa@pinnacleactuaries.com