DRM Presentation

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Presenting DRM Results:
Helping Executives Make Sense of DRM
Aleksey S. Popelyukhin, Ph.D.
Foreword ........................................................................................................................
2
Anatomy of a Presentation ............................................................................................
2
Skeleton (Text) ......................................................................................................................
2
Muscles (Charts) ...................................................................................................................
3
Uncertainty ........................................................................................................................................
Ranking .............................................................................................................................................
Development & Trends .....................................................................................................................
Simulations ........................................................................................................................................
Allocations .........................................................................................................................................
Charts as Selection Tools! .................................................................................................................
Conventions, Expectations ................................................................................................................
3
6
9
13
14
16
17
Skin (Animation) ................................................................................................................... 19
Brains (Logic Flow) .............................................................................................................. 19
Not To Do List ................................................................................................................ 20
Ockham’s Razor ................................................................................................................................
Too Much Info ...................................................................................................................................
Not Enough Info ................................................................................................................................
Dull Graphics ....................................................................................................................................
20
20
21
21
Other Sources of Inspiration ......................................................................................... 21
Websites ................................................................................................................................. 21
Charting software ................................................................................................................. 22
Magazines .............................................................................................................................. 22
Conclusion ...................................................................................................................... 22
Acknowledgements ......................................................................................................... 23
Appendix 1 ...................................................................................................................... 24
Appendix 2 ...................................................................................................................... 24
Appendix 3 ...................................................................................................................... 24
Bibliography ................................................................................................................... 26
This paper has been written as a part of the “2003 CAS Working Party on Executive Level
Decision Making using Dynamic Risk Modeling” research project (see Acknowledgements).
Foreword
Information… the most crucial ingredient of decision making.
Professionals are using more and more sophisticated tools to extract information from the data at
hand. Unfortunately, those who are skilled in leadership, management and decision making – the
senior management of a company – are not necessarily trained in advanced mathematics and
statistics. Forgivably, the senior management team could quite possibly be unfamiliar with the
concepts, terminology and notation used in modern financial analysis. Thus, it is up to actuaries –
the most proficient DRM practitioners – to present results of their studies to the management in
the most accessible and accurate way. Alas, it is easier said than done.
Presenting results of Dynamic Risk Modeling requires filigree techniques, deep knowledge of the
subject and even some artistic skills in order to achieve that delicate balance of science and
advertisement, which constitutes successful presentation. (Thinking of a presentation as a form of
advertising may be new to actuaries, but an ability to sell the results of a study is quickly
becoming a necessary skill). It’s a very narrow path indeed. One wrong choice in level of details
or chart type or even color and the audience is lost. On the other hand, modern presenting tools
are so rich and flexible that, with careful use of those tools, it is possible to express any thought,
any notion, and any concept.
The following text is an attempt to create a guide for aspiring DRM presenters.
Anatomy of a Presentation
Skeleton (Text)
Any presentation is an attempt to express thoughts and deliver a message. And while visuals
(charts, graphs and animations) on the slide help enormously, they are nevertheless just an aid.
The text still remains the best tool for the job. For the high quality presentation, though, not any
text suffices: the language of a presentation has to be precise, concise and help to emphasize.

Precise. Every statement in a presentation slide has to be correct: a presenter can not
sacrifice accuracy for simplicity sake. It is not an easy task to formulate precise phrases
for the audience that may not even be familiar with the terminology, but it has to be done.
Perhaps, the best solution in this situation is to use analogies. However, analogies ought
to be sophisticated enough and – sorry for the repetition – precise.

Concise. The text on the slides has to be laconic and succinct: it is practically impossible
to get enough attention from the audience of multi-tasking, super-busy, patience-lacking,
fast-reacting management types. The time invested in shortening every bullet in the
presentation will pay back handsomely: food for thoughts is better digested when bits are
concise.

Emphasize. Every presentation is an advertisement: the main message has to be
emphatically accentuated. Indeed, a presenter is selling his point of view, conclusions of
2
the study or recommendation for particular decision – there is nothing wrong with some
emphasis.
Every presenter has three major time-tested presentation techniques at his disposal: analogy,
humor and illustrations.

Analogy. Good analogy – like a flashlight – helps to highlight major points and focus on
major features leaving out unnecessary details. Rarely used, but as effective is
undeservingly forgotten negative analogy.

Humor. A smart, tasteful and appropriate joke can do wonders in capturing or restoring
audience attention. And even if it doesn’t work, as a consolation, one may still contribute
it to http://www.actuarialjokes.com and warn others.

Illustrations. Items such as charts, drawings, animations, diagrams are always very
useful. The presenter’s skill, however, lies not only in using illustrations per se, but in not
using too many of them. Careful selection of only the most meaningful ones will be
greatly appreciated by the audience. The following chapters may help in designing such a
selection.
Muscles (Charts)
There exists innumerable diversity of chart types. Not every chart design is suitable for every
purpose, though. Presentation of DRM study results poses additional difficulties. DRM operates
with some specific notions that are not considered commonplace by charting software designers.
Therefore, the chart types needed to illustrate these DRM concepts are not readily available in
commercial software packages (e.g., Excel and PowerPoint). Particularly challenging are three of
them: uncertainty, development and ranking. Let’s look at some examples of the charts we
designed to illustrate these and other DRM notions. We intentionally limited ourselves with Excel
Chart engine as the most ubiquitous charting tool available practically to everyone1:
Uncertainty
Uncertainty is a tricky notion: hard to explain – harder to illustrate. We present several
approaches that attempt to do it.
One approach, the most obvious one, is to chart the chances. It could be a bar chart (a
histogram) or a line chart. Excel allows displaying a probability density function (pdf) or a
cumulative density function (cdf) or both on the same chart.
The recipe: Excel’s standard dual-axes chart with all series but one displayed as bars and one
series displayed as a line.
Suitable for: Distribution charts.
1
Charts designed with Excel Chart module can be reused in PowerPoint. In fact, illustrations in this article
are hyperlinked to the PowerPoint document. Clicking (CTRL-clicking) on the chart loads ‘DRM
Presentation.ppt’ and jumps to the corresponding slide. One can then double-click on the chart, edit its
design and/or underlying data and reuse it in one’s own presentation.
3
Profit distribution
0.28
1
0.24
0.8
Probability
0.2
0.6
0.16
0.12
0.4
0.08
0.2
0.04
0
0
-60
-50
-40
-30
-20
-10
0
10
20
30
40
Mil
pdf
cdf
In some situations the graph presented above may contain more precision than the audience finds
useful. Another way to represent information on the range of probable results is to display
vanishing probabilities through the creative use of colors, or more precisely, shades of the same
color fading into background.
The recipe: Excel’s standard bar chart with gradient fills (from any foreground color to the
background color) and without borders.
Suitable for: Range of outcomes, expected values, spread.
99% Range of Outcomes
Option4
Option3
Option2
Option1
-40
-20
0
20
40
60
80
100
120
Millions
One may expect that the audience’s eyes will subconsciously be drawn to the areas of higher
color density, thus, focusing audience’s attention on the area of more probable outcomes (while
still maintaining impression of the size of the whole range).
With the help of 3-D rotations it is possible to explain the relationship between the previous two
illustration techniques. The series of charts below demonstrates how to associate shades of color
with the likelihood levels.
The recipe: Start with a 3-D line chart colored with gradient fills and steadily changing its 3-D
view parameters to convert it into 2-D bar chart.
Suitable for: Explanatory, illustrative or convention setting charts.
4
Distributions of Liability Cash Flow
Distributions of Liability Cash Flow
0.8
0.7
0.8
0.5
0.7
0.6
0.4
0.5
0.3
2,700
2,500
2,300
2,100
1,900
1,700
1,500
Millions
1,300
1,100
900
700
500
300
0.2
0.1
2006
2005
500
900
700
300
Millions
2003
1,100
1,500
1,300
1,900
1,700
2,300
2004 Years
2,100
2,500
2,700
0
0.4
0.3
Probability
Probability
0.6
0.2
0.1
0
2006
2005
2004
2003
Years
Distributions of Liability Cash Flow
Distributions of Liability Cash Flow
2,700
2,500
2,300
.
Probability
2,100
2,700
2,500
2,300
2,100
1,900
1,700 Millions
1,500
1,300
1,100
900
700
500
0.8
0.7
0.6
0.5
0.4
0.3
0.2
0.10
1,900
1,700 Millions
1,500
1,300
1,100
900
700
500
300
2003
2004
2005
300
Probability 0.1
0.8
0.7
0.6
0.5
0.4
0.3
0.2
0
2003
2006
2004
2005
2006
Years
Years
Once the shading convention is established and understood it makes sense to use it for displaying
random values and even random processes:
The recipe: One of the series on Excel’s gradient filled bar chart is converted to a Line.
Suitable for: Cash flows, reserves, payouts, uncertain values over time.
Billions
Range of Liability Cash Flow Over Time
3.0
Max
90-95%ile
2.5
75-90%ile
50-75%ile
2.0
25-50%ile
10-25%ile
1.5
5-10%ile
0-5%ile
1.0
Min
Avg
0.5
0.0
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
In some situations charting detailed probability distributions may not be necessary or even
possible: a chart of probable ranges of outcomes may suffice. Usually it happens when there is a
need for a higher level analysis or final conclusion (like the choice between possible scenarios or
options) and/or when minute details are not really needed and could even be distracting.
5
The simplest way to add information about the size of outcome ranges is to use error bars.
Luckily, Excel supports error bars for both X and Y axes.
The recipe: Excel’s standard XY (scatter) plot with oversized (12 or more pts) markers. Specify
additional series of numbers for minimum and maximum values of X and Y axes Error Bars
Suitable for: Functions of two uncertain variables.
LOBs Performance
10.00%
9.00%
Capital Consumption
8.00%
LOB4
7.00%
6.00%
LOB1
5.00%
4.00%
LOB3
3.00%
LOB2
2.00%
1.00%
0.00%
0.00%
0.50%
1.00%
1.50%
2.00%
2.50%
3.00%
3.50%
4.00%
4.50%
5.00%
ROE
For a less precise, but (arguably) more impressive illustration of 2-D range of possible outcomes
one may use Bubble chart. Excel supports only “spherical” rather than “elliptical” bubbles: there
is no control over top and bottom or left and right radii of the bubble. Thus, asymmetric
distributions are getting displayed incorrectly. Still, bubbles better represent uncertainty than dots
The recipe: Excel’s standard Bubble chart with area’s “3-D effect” option enabled. Use the
“width of bubbles” option if a bubbles’ size is defined by standard deviation, and use the “area
of bubbles” option if their size is defined by variance. To display the bubbles’ centers add an
additional series with the small constant bubble size.
Suitable for: Functions of two uncertain variables.
LOBs Performance
10.00%
9.00%
Capital Consumption
8.00%
LOB4
7.00%
6.00%
LOB1
5.00%
4.00%
LOB3
3.00%
LOB2
2.00%
1.00%
0.00%
0.00%
0.50%
1.00%
1.50%
2.00%
2.50%
3.00%
3.50%
4.00%
4.50%
5.00%
ROE
Ranking
Culturally, we have become accustomed only to extremes. Only “the largest”, “the fastest”, “the
strongest” can attract our attention. No wonder, any decision maker would like to rank his options
to choose “the best” one. This is not an easy task. Dynamic Risk Modeling output usually consists
of simulated distributions. And, no matter how detailed and precise these distributions are, it is
6
often not clear which one is “better”. In other words, we can easily compare points on the line
(fixed values), but it is not evident how to compare curves (random values).
Projected Combined Ratios with and without reinsurance
3.4
2.9
Projected Likelihood
2.4
1.9
1.4
0.9
0.4
-0.1
0.6
0.8
1
1.2
1.4
no reinsurance
1.6
1.8
2
current reinsurance
Even more complicated is the task of comparing values in two dimensions. One scenario may be
more profitable, but risky; another one less risky, but less profitable.
The recipe: Excel’s bubble chart can be used with a picture as a fill effect.
Suitable for: Illustration of indecisiveness.
LOBs Performance
10.00%
9.00%
Capital Consumption
8.00%
LOB4
7.00%
6.00%
LOB1
5.00%
4.00%
LOB3
3.00%
LOB2
2.00%
1.00%
0.00%
0.00%
0.50%
1.00%
1.50%
2.00%
2.50%
3.00%
3.50%
4.00%
4.50%
5.00%
ROE
To compare scenarios with two or more important qualities, criteria must be selected. Selecting
such criteria (which allows ranking scenarios while taking into account multiple aspects) is a
special skill. However, once a criterion or scoring system or measurement is chosen, the DRM
presenter may help visualize it.
Generally speaking, ranking criteria may be defined through several variables by quite
sophisticated formulae: we leave this case to proprietary software specialized in visualization.
However, frequently enough, a criterion could be expressed rather simply through the relationship
of two variables and, thus, can be visualized through color-coding and/or additional grids.
Many criteria consist of just comparing one variable to another. This comparison could be in the
form of division of one variable by another (“return” / “std. deviation”, “ROE”/ “Relative Capital
Consumption”, etc) thus, generating a family of lines (Y/X=C) where the criterion score remains
constant. These lines are nothing other than rays originating in the corner with ever increasing
slope and can be visualized with the simple Plot Area Fill Effect.
7
The recipe: In the Format Plot Area/Fill Effects dialog box choose Two colors gradient with the
Diagonal up shading style. A darker color should represent higher values of the criterion and a
lighter color – lower values.
Suitable for: Functions of two uncertain variables.
LOBs Performance
10.00%
9.00%
Capital Consumption
8.00%
LOB4
7.00%
6.00%
LOB1
5.00%
4.00%
LOB3
3.00%
LOB2
2.00%
1.00%
0.00%
0.00%
0.50%
1.00%
1.50%
2.00%
2.50%
3.00%
3.50%
4.00%
4.50%
5.00%
ROE
In the cases where the gradient fill is too subtle or too imprecise (chart corner is not (0,0) or a
criterion is more complicated than the value of Y/X) the next logical step would be to paint areas
of “indifference” – areas where criterion scores are acceptably close.
Our example is again for Y/X=C family of lines, but this method works for any expression.
The recipe: Excel’s standard Stacked Area chart where series are painted with the darkening
shades of the same color.
Suitable for: Risk-reward charts.
A less intrusive and more flexible way to display areas of similar criterion scores is to chart oneparametric family of level curves. If the criterion is minimization of Y/X, draw lines Y/X=C for
several values of C; if the criterion is expressed as Y2/X, draw a few parabolas Y2/X=C, etc…
The recipe: Within Excel use smoothed custom line pattern without markers for the oneparametric family of lines.
Suitable for: Functions of two uncertain variables.
8
LOBs Performance
LOBs Performance
10.00%
10.00%
9.00%
9.00%
8.00%
LOB4
7.00%
Capital Consumption
Capital Consumption
8.00%
6.00%
LOB1
5.00%
4.00%
LOB3
3.00%
LOB2
2.00%
6.00%
LOB1
5.00%
4.00%
LOB3
3.00%
LOB2
2.00%
1.00%
0.00%
0.00%
LOB4
7.00%
1.00%
0.50%
1.00%
1.50%
2.00%
2.50%
3.00%
3.50%
4.00%
4.50%
0.00%
0.00%
5.00%
0.50%
1.00%
ROE
1.50%
2.00%
2.50%
3.00%
3.50%
4.00%
4.50%
ROE
Interestingly enough, while DRM models effortlessly churn out hard-to-compare probability
distributions for different scenarios, they usually do not produce distributions of the differences.
Clearly, for the purpose of comparison, it would be extremely useful to the “net effect” of the
change in strategy (i.e., buying reinsurance or changing investment mix or reallocating capital).
Indeed, it is enormously hard to compare random values after their distributions were generated,
while it is only a marginal effort to calculate their difference inside every simulation path. And it
makes more sense, because this way one measures the differences of outcomes in the same
situations represented by the same step of a simulation. Adding the differences to each stream of
random numbers to produce the “net effect” evaluation would be both practical and useful for the
comparison between the options.
Surely, any type of chart discussed in this chapter will be as useful for illustrating the “net
effects” of selecting one option instead of another.
Millions
Net Effect
2.6
2.5
Std. Deviation
2.4
1.2, 2.36
2.3
6.25, 2.297
2.2
7.92, 2.215
3.3, 2.157
2.1
2
0
2
4
6
8
10
Millions
Return
Development & Trends
There exist several techniques to emphasize development, that is, change over time.
Unfortunately, the easiest one – an arrow pointing in the proper direction – is not part of the
Excel Chart engine and has to be employed with the help of other software.
9
5.00%
A gradual change in color and/or line width may serve as some kind of arrow substitution as
illustrated below. Ideally, the viewer’s eyes will move from “unpleasant” reddish tones to the
“calm” yellowish shades – exactly in the direction we want them to.
Billions
Run-Off Payout
2.0
1.8
1.6
1.4
1.2
1.0
0.8
0.6
0.4
0.2
0.0
1997
1998
1999
2000
2001
2002
2003
2004
Sometimes it is necessary to illustrate development of an uncertain value. In order to emphasize
development as opposed to the full ranges of possibilities, it makes sense to use an established
statistical convention: displaying probability distributions as fixed percentile boxes.
The recipe: Excel’s standard Stock Chart with 25th, 100th, 0 and 75th percentiles instead of
Open-High-Low-Close prices. One can fill Up-Bars with the horizontal color preset.
Suitable for: Development of uncertain values over time, random processes.
Billions
Range of Liability Cash Flow Over Time
(10 - 90 percentiles)
3.0
2.5
2.0
10 %ile
90 %ile
1.5
1.0
0.5
0.0
2003
2004
2005
2006
2007
2008
2009
2010
Unfortunately, Excel’s Stock Charts are too inflexible to show multiple percentiles and they don’t
allow additional information (like positions of the mean and median) to be displayed. An elegant
workaround allows displaying points and lines that help to illustrate trends and development.
The recipe: Excel’s standard Area Chart allows displaying Y Error Bars with a Custom Error
Amount: just enable them for the 50th percentile series.
Suitable for: Development of uncertain values over time, random processes.
10
Billions
Range of Liability Cash Flow Over Time
3.0
Max
90-95%ile
2.5
75-90%ile
50-75%ile
2.0
25-50%ile
10-25%ile
1.5
5-10%ile
0-5%ile
1.0
Min
Avg
0.5
0.0
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
Another way to emphasize development and make the viewer’s eyes to move in the proper
direction is a gradual change of color in the background.
The recipe: Use a vertical gradient to fill the Chart Area. Employ different line patterns to
display different percentiles while not distracting the viewer from the main development display.
Suitable for: Development of uncertain values over time, random processes.
GAAP RoE
25.00%
20.00%
15.00%
10.00%
5.00%
0.00%
-5.00%
-10.00%
1998
1999
2000
2001
2002
2003
2004
2005
Using the same convention for displaying development of the random value one may compare
two or more options. Beware of the viewer’s confusion – i.e., options displayed need to be
distinctive.
The recipe: Use colors similar to background and low weights for benchmark scenario lines as
opposed to bright colors and higher width lines for the alternative scenario.
Suitable for: Development of multiple uncertain values over time, options comparison.
GAAP RoE (no-Reinsurance vs. Reinsurance)
30.00%
Curr 5%ile
25.00%
Curr 20%ile
20.00%
Curr 50%ile
Curr 80%ile
15.00%
Curr 95%ile
10.00%
Alt 5%ile
5.00%
Alt 20%ile
0.00%
Alt 50%ile
Alt 80%ile
-5.00%
Alt 95%ile
-10.00%
1998
1999
2000
2001
2002
11
2003
2004
2005
While on the topic of comparison: instead of scenarios one may compare assets to liabilities. The
technique described above will suffice, but there are other options.
The recipe: Excel’s standard Bubble chart with two series: one for assets and one for liabilities.
Suitable for: Comparison of development of two uncertain values.
Asset - Liability Matching
8
7
6
Billions
5
4
Losses
Assets
3
2
1
0
-1
1998
1999
2000
2001
2002
2003
2004
2005
Surely, the notion of development immediately leads to the related notion of trends and forecasts.
Excel provides a capability to add trend-lines to the chart. While not fully flexible (the user can’t
create customized trend function and/or exclude data points from the trend calculation), it’s
automatic and easily accessible.
The recipe: Excel’s standard Bubble chart with trend-lines and 2 points forecast for each series.
Suitable for: Comparison of development of two uncertain values.
Asset - Liability Matching
8
7
6
5
Billions
Losses
Assets
4
Poly. (Assets)
3
Poly. (Losses)
2
1
0
-1
1998
1999
2000
2001
2002
2003
2004
2005
2006
Those not satisfied with Excel’s built-in trend-line options may build their own trend-lines
The recipe: While it looks like an elaborate line chart, it is actually a gradient filled Area Chart
with the Drop Lines option enabled.
Suitable for: Emphasis on extrapolation of the trend.
12
Billions
Cash Flow Over Time
2.0
1.8
1.6
1.4
1.2
1.0
0.8
0.6
0.4
0.2
0.0
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
Simulations
Displaying the raw simulation results rather than various statistics is complicated and rarely
needed. The sheer volume of data from the DRM model’s simulation results will test the limits of
Excel’s Chart Engine as well as the audience’s comprehension abilities. Nevertheless, a display
of simulation outcomes can sometimes be quite impressive and may, at the very least, establish a
reference point for the slides to follow.
The results of every single simulation are usually displayed as a point on a Scatter Chart. More
often than not it is beneficial to color-code these data points according to some useful criteria. To
assign different colors to different points one either should separate data into several series
(which may pose some challenges) or write a simple VBA macro to do the job.
The recipe: Scatter Chart enhanced by VBA color assignment macro.
Suitable for: Illustration of density areas of simulated results.
Increase in Capital & Surplus
10.00%
8.00%
6.00%
Increase With Hedge
4.00%
2.00%
0.00%
-2.00%
-4.00%
-6.00%
-8.00%
-10.00%
-10.00% -8.00%
-6.00%
-4.00%
-2.00%
0.00%
2.00%
Increase Without Hedge
13
4.00%
6.00%
8.00%
10.00%
Allocations
A concept every manager is intimately familiar with is allocation: a set of positive values that add
up to 100%. The only reason we will briefly discuss it here is the dynamic aspect of allocations.
That is to say how an allocation of resources or assets will change depending on the options
available to management and under review through the DRM study.
There are many ways to display an allocation: from a pie chart to a stack-up bar chart, but what is
the best way to illustrate changes in allocation? We present a few types of charts. The choice is
(as always) up to the user.
The most straightforward way to illustrate a change in allocation is to show multiple pie charts
stacked one under another. Unfortunately, Excel doesn’t allow multiple pies on the same chart
and dealing with multiple charts multiplies the effort.
The recipe: Two standard Pie charts resized and grouped together.
Suitable for: Change in allocation illustrations.
7.0%
11.0%
51.0%
Bonds
31.0%
Equity
Cash
7.0%
11.0%
Other
11.0%
71.0%
Unfortunately, Excel doesn’t allow multiple pies on the same chart and dealing with multiple
charts multiplies the effort. The solution is simple: replace pie charts with concentric “pie” rings.
The recipe: Excel’s standard Doughnut chart with two series.
Suitable for: Change in allocation illustrations.
Investment Strategies
Alt
7.0%
Alt
11.0%
7.0%
Bonds
11.0%
Equity
Alt
11.0%
Cash
51.0%
Other
31.0%
Alt
71.0%
14
Another option is to use different variations of the bar charts placing related items in proximity
to each other. A variation of that is to add a table of values for clarity.
The recipe: 3-D Column with a Cylindrical Shape chart with Data Labels.
Suitable for: Change in allocation illustrations, strategies comparison.
Investment Strategies
71.0%
80.0%
70.0%
60.0%
51.0%
50.0%
40.0%
Curr
30.0%
Alt
31.0%
20.0%
11.0%
11.0%
10.0%
11.0%
0.0%
7.0%
7.0%
Bonds
Equity
Alt
Cash
Other
Curr
The recipe: Clustered Cylindrical Column 3-D chart with the Data Table displayed.
Suitable for: Change in allocation illustrations, strategies comparison.
Investment Strategies
80.0%
70.0%
60.0%
50.0%
40.0%
30.0%
20.0%
10.0%
0.0%
Bonds
Equity
Cash
Other
Curr
51.0%
31.0%
11.0%
7.0%
Alt
71.0%
11.0%
11.0%
7.0%
When it is imperative to emphasize that all percentages add up to 100% a stacked-up chart comes
to the rescue.
The recipe: 100% Stacked with 3-D Visual Effect chart.
Suitable for: Change in allocation illustrations, strategies comparison.
15
Investment Strategies
100%
51.0%
80%
71.0%
60%
40%
31.0%
20%
11.0%
7.0%
11.0%
0%
11.0%
7.0%
Curr
Alt
Bonds
51.0%
71.0%
Equity
31.0%
11.0%
Cash
11.0%
11.0%
Other
7.0%
7.0%
In order to demonstrate changes in allocation for multiple stacks it may be wise to forgo 3-D
effects and return to plain-vanilla columns.
The recipe: 100% Stacked Column chart with Series Lines option enabled.
Suitable for: Change in allocation illustrations.
Portfolio structure
100%
90%
80%
70%
51.0%
60.0%
71.0%
60%
50.0%
77.0%
50%
12.0%
40%
30%
11.0%
20%
10%
5.0%
10.0%
31.0%
11.0%
7.0%
6.0%
11.0%
12.0%
25.0%
7.0%
26.0%
12.0%
1998
1999
5.0%
2000
2001
2002
WC
51.0%
71.0%
77.0%
60.0%
50.0%
GL
31.0%
11.0%
6.0%
5.0%
12.0%
AL
11.0%
11.0%
12.0%
10.0%
26.0%
Other
7.0%
7.0%
5.0%
25.0%
12.0%
0%
Charts as Selection Tools!
The work of a Dynamic Risk Modeler includes selection and fine-tuning multiple parameters
while setting up DRM models. While some parameters are stand-alone values, others are better
represented by curves. And what could be better than selecting and adjusting curves by moving
points on the chart? Thankfully, Excel provides such a capability: movement of data points on the
line chart modifies underlying Excel values.
16
Payout Pattern
102.0%
100.0%
98.0%
96.0%
Avg
Min
94.0%
Max
92.0%
Industry
Selected
90.0%
88.0%
86.0%
84.0%
0
12
24
36
48
60
72
84
96
108
120
Supplied with the “guiding” curves (representing extremes, average and industry data) this chart
becomes a great Visual Selection tool.
Conventions, Expectations
Even for the most seasoned DRM practitioner it takes some real effort to grasp information
presented by different chart types. It takes much more time and effort for the audience (which is,
supposedly, less familiar with the ways of displaying DRM conclusions) in the course of a short
presentation to switch from one type of chart to another. A successful move from one chart to the
next may require some gentle guidance and assistance from the presenter. It is always beneficial
to assume that the audience is very bright but (unfortunately) has a limited Statistics and
Simulations background. So, some effort to clarify the conventions you are using is appropriate.
Prior to presenting an informative slide with an impressive chart, it makes perfect sense to
familiarize the audience with the conventions you are using and clearly indicate where to look
and what to watch for. An introductory slide with well-placed comment or two may do the trick.
Every type of chart potentially needs an “educational” companion slide. For some charts it is
crucial to emphasize an axis and/or to briefly explain the nature of the values. Take, for example,
Probability Distribution or Risk vs. Reward types of charts:
Probability Density Function
0.28
0.24
Probability to lose
5 to 10 Mil…
Probability
0.20
0.16
…20 to 25 Mil
0.12
0.08
0.04
0.00
-60 -55 -50 -45 -40 -35 -30 -25 -20 -15 -10 -5
0
Outcomes ($Mil)
17
5 10 15 20 25 30 35 40
It may be necessary to define conventions for those charts that make creative use of lines, colors
and shapes. The majority of the charts presented in the “Uncertainty”, “Development & Trend”
and “Ranking” sections may significantly benefit form the “explanatory” slide immediately
preceding them:
Even when conventions are well defined and understood, some chart types may require additional
emphasis on expectations, since, on occasion, “behaviors” (like increase or decrease being
monotonic or the slope or relative position of data points) should be of the bigger concern, rather
than values. It makes sense to define these areas of concern in advance in a “teaser” type of slide:
Std. deviation
Millions
Risk vs. Reward
Preference
30
25
Good
20
Better
15
10
Better yet
5
The best
0
$-
$5
$10
$15
$20
$25
$30
$35
$40
$45
$50
Millions
Return
In fact, PowerPoint (within its “custom animation” feature) has the ability to display axis, grid,
auxiliary lines and other chart elements sequentially with predefined pauses and even stops. A
presenter may use this functionality to introduce conventions and set expectations prior to
displaying actual data on the chart.
18
Skin (Animation)
Animation is a very powerful illustrative tool. And while it is suitable in any presentation on any
topic, it is invaluable for DRM presentations. Indeed, sometimes animation is the only way to
illustrate uncertainty, and emphasize development or trend. The following chart is a plain line
graph, but animated as a slow wipe from the left, it accentuates change over time and hints at the
trend.
Billions
Run-Off Payout
2.0
1.8
1.6
1.4
1.2
1.0
0.8
0.6
0.4
0.2
0.0
1997
1998
1999
2000
2001
2002
2003
2004
Similarly, a simple doughnut chart (see above) once animated as wedge by elements of category
effectively emphasizes the change in allocation.
Brains (Logic Flow)
No technological trickery and razzle-dazzle can hide the absence of a presentation’s logical flow.
As with a literary undertaking, a graphical presentation should follow the rules of good writing: it
should have drama, development and conclusion. There are basically two ways to keep the
audience interested: either start with the surprising conclusion and then explain step-by-step the
way to arrive at it or by maintaining suspense and increasing tension as you go from the
beginning to the astonishing end.
Most of the time, a presenter has to distill a DRM study of a “War and Peace” grandeur into the
half hour comics strip. Without a transparent logical flow the audience may easily get lost.
To avoid confusion it is always a good idea to explain major logical steps to the audience. A
flowchart or a diagram of the presentation goes a long way in helping the audience to follow the
presenter’s logic. A bullet point slide with the agenda items listed can work in some cases.
However, if the presentation logic branches out, it makes sense to color-code slides dedicated to
different branches. For example, use blue titles on all slides about “Reinsurance Option 1” and
green titles on all slides about “Reinsurance Option 2” etc…
19
Not To Do List
Ockham’s Razor
Do not add graphs or any graphical image to your presentation just because they look “cool” or
because everyone else does it. Use the following rule of thumb: “My chart deserves to be
included only if I can explain what it illustrates with one simple phrase and there is an area on the
chart where I can aim my pointer and say: “Look here. This is very important”. All other charts
have to go.
Too Much Info
As a famous Renaissance sculptor Michelangelo Buonarotti used to say: “I don’t really sculpt – I
just take away excess marble”. Like a sculpture inside the stone, information already exists inside
the data. It just waits for the excess figures to be removed. Sometimes by saying less you are
telling more:
50%
40%
Expected Return
L
30%
J
I
H
20%
G
N
R
Q
O
P
F
K
C
D
E
B
A
M
10%
0%
0.0%
0.5%
1.0%
1.5%
2.0%
Level of Risk
20
Not Enough Info
Insufficient information is as just as dangerous as superfluous information. Sometimes a slide
needs just an axis title or a grid or a trend line to become perfect. Additional graphical elements
(lines, shapes, colors, legend) may help the audience to better understand slides and charts.
Obviously, the fewer words that are needed during the presentation to describe the charts message
the better. You want to present your findings to the greatest extent possible, not explain the
details of the graph.
Risk Return Tradeoff Chart
Risk Return Tradeoff Chart
$35,000
No Rein
$30,000
Stop Loss
Excess
$25,000
$20,000
Pro Rata
$15,000
$10,000
$30,000
$35,000
$40,000
$45,000
$50,000
$55,000
$60,000
$65,000
$70,000
is
k
is
k
R
H
M
ig
he
rR
ed
iu
m
all
er
$40,000
Sm
$40,000
Ri
sk
$45,000
Return - Expected SAP Net Income (after-tax)
Return - Expected SAP Net Income (after-tax)
$45,000
$35,000
No Rein
Stop Loss
$30,000
Excess
$25,000
$20,000
Pro Rata
$15,000
$10,000
$30,000
$35,000
$40,000
$45,000
$50,000
$55,000
$60,000
$65,000
Risk - Standard Deviation of Net Income (after-tax)
Risk - Standard Deviation of Net Income (after-tax)
Dull Graphics
Dull graphics with default gray background and five-six data points of different shapes is almost
an insult to any audience – particularly at the executive level. The lack of time to produce an
attractive presentation is no excuse. Given how much time has been spent obtaining the DRM
results, it is only prudent to budget sufficient time to communicate the results effectively.
Essentially, the amount of effort one spends on improvements to the presentation is directly
proportional to the amount of attention the targeted audience will be willing to demonstrate and to
the overall success of the DRM study project.
Other Sources of Inspiration
Websites
http://www.dfa.com/flash.html
http://www.casact.com/coneduc/dfa/2000/handouts/leibowitz.ppt
http://www.casact.com/coneduc/rcm/2003/RCMHandouts/bohra1.ppt
http://www.casact.com/coneduc/rcm/2003/RCMHandouts/isaac2.ppt
http://www.casact.com/coneduc/dfa/2001/handouts/stricker1.ppt
21
$70,000
http://www.casact.com/coneduc/dfa/2001/handouts/schwartz1.pdf
http://www.casact.com/coneduc/dfa/99dfa/handouts/newman.ppt
http://www.casact.com/coneduc/dfa/99dfa/handouts/conger.ppt
http://www.casact.com/coneduc/reinsure/2001/handouts/venter1.ppt
Charting software
Power Plugs for PowerPoint: Chart
(http://www.crystalgraphics.com/presentations/charts.main.asp)
Tecplot (http://www.tecplot.com)
NetCharts (http://www.visualmining.com/examples/graphs.html)
Mathematica (http://www.wolfram.com/solutions/statistics/packages.html)
Magazines
Presentations Magazine (http://www.presentations.com).
Inside Microsoft PowerPoint Magazine (http://www.amazon.com/exec/obidos/tg/detail//B00006KIGU/102-8258859-5810540?v=glance).
Working Smarter with Microsoft PowerPoint Magazine
(http://www.bluedolphin.com/product/product.vm?PRODID=99918).
Conclusion
There is an old proverb: “Do not feed me, rather teach me to hunt” highlighting that learning the
“know-how” of production provides a more lasting solution than consuming prepared products.
Well, this project attempts to kill two rabbits with one bullet: it provides a “meal” along with the
“hunting guide”. For people in a hurry the “DRM Presentation.ppt” contains ready-to-use slides
with the most commonly used charts, while this document “DRM Presentation.doc” contains
instructions for those who have both the time and the desire to build customized presentations.
22
Acknowledgements
This paper has been written as a part of the “2003 CAS Working Party on Executive Level
Decision Making using Dynamic Risk Modeling” research project. It was sponsored by and peer
reviewed by the CAS Dynamic Risk Modeling Committee.
Working Party Members:
Mikhael R. Larsen [email protected], co-Chairperson
Nathan Babcock [email protected], co-Chairperson
Raju Bohra [email protected],
Patrick J. Crowe [email protected],
Aleksey Popelyukhin [email protected],
Nathan Schwartz [email protected],
Scott Sobel [email protected],
Robert Walling [email protected]
Dynamic Risk Modeling Committee Members:
Mark R. Shapland, Chairperson
Craig Allen
Nathan Babcock
Peter Burchett
Thomas Conway
Patrick J. Crowe
Richard W. Gorvett
Phil Heckman
Mike Boa, CAS Staff Liaison
Stamford, 2003
23
Larry Johnson
Michael Larson
Glenn Meyers
Timothy Pratt
James E. Rech
Karl Goring
Chester Szezepanski
Run Yan
Appendix 1
To modify charts described throughout the article:

Launch Microsoft PowerPoint, preferably version 97 or better

Open the “DRM Presentation.ppt” file

Find a slide with a chart to modify and double-click on the chart area

All charts in this presentation are Microsoft Excel charts which can be edited “in place”
(inside the PowerPoint slide)

The “Chart1” page contains the chart displayed in PowerPoint. Make all the changes to
chart properties here

To replace data, click on the “Sheet 1” page and navigate to the area labeled “User
Data”. It is a “live” spreadsheet so the majority of analytical Excel facilities are
available here

It is important to switch back to the “Chart1” page before leaving the Excel editing area
Appendix 2
To modify custom animations of the objects on the slide:

Launch Microsoft PowerPoint, preferably version XP or better

Open the “DRM Presentation.ppt” file

Select a slide to modify

Right-click on any object on the slide (chart, picture, text) and select “Custom
Animation” menu item…

The Custom Animation task pane should appear on the right side of the screen (if it
doesn’t select View/Task Pane item from the PowerPoint menu)

The task pane displays a sequence of animated events as well as providing a means to
modify it

Clicking on any event identifies the object it applies to. You can then change the effect,
its order, its timing and (more importantly) the event’s trigger: there are options to
trigger an event automatically or on the presenter’s mouse click

It is always a good idea to launch a slide to check the animation and event triggers
Appendix 3
To create a presentation chart that reacts to data changes in Excel:

Create a chart in Excel (for example, in the Public Access DRM Model file)

Right-click on it and select “Copy” from the object’s menu
24

Launch Microsoft PowerPoint, preferably version XP or better

Open a presentation file, select the destination slide

Select “Edit/Paste Special/Paste Link”

From now on your PowerPoint chart will react to changes in the Excel spreadsheet

You may control link update behavior and even unlink the chart by choosing the
“Edit/Links…” menu item in PowerPoint
25
Selected Bibliography
(in alphabetical order)
[1] Trevor Bounford. Digital Diagrams: How to Design and Present Statistical Information
Effectively, Watson-Guptill Publications, 2000
[2] Ellen Finkelstein. How to Do Everything with PowerPoint 2002, McGraw-Hill, 2002
[3] Robert L. Harris. Information Graphics: A Comprehensive Illustrated Reference.
Management Graphics, 1997
[4] Theo Mandel. The Elements of User Interface Design. Wiley Computer Publishing, 1997
[5] Aleksey S. Popelyukhin. Let Me See: Visualizing Actuarial Information. Spring 2001, CAS
Forum
[6] Will Schroeder, Ken Martin, Bill Lorensen. Visualiazion Toolkit. Prentice Hall, 1998
[7] Edward R. Tufte. Visual Explanations. Graphics Press, 1997
[8] Colin Ware. Information Visualization: Perception for Design, Academic Press, 2000
[9] Peter Wildbur, Michael Burke. Information Graphics: Innovative Solutions in Contemporary
Design, Thames and Hudson, 1998
[10] Gene Zelazny. Say it with Charts: The Executive's Guide to Visual Communication.
McGraw-Hill, 1996
26
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