A Management Rule of Thumb in Property-Liability Insurance

Due to substantial changes in competition, capital market conditions, and supervisory frameworks, holistic analysis of an insurance company’s assets and liabilities takes on special relevance. An important tool in this context is dynamic financial analysis (DFA). DFA is a systematic approach to financial modeling in which financial figures are projected under a variety of possible scenarios by showing how outcomes are affected by changing internal and/or external factors. The discussion in Europe about new risk-based capital standards (Solvency II project) and the development of International Financial Reporting Standards (IFRS), as well as expanding catastrophe claims, have made DFA an useful tool for cash flow projection and decision making, especially in the non-life and reinsurance businesses (for an overview, see [2]).