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Dynamic Financial Analysis: Classification, Conception, and Implementation

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  • Martin Eling
  • Thomas Parnitzke

Abstract

Dynamic financial analysis (DFA) models an insurance company's cash flow in order to forecast assets, liabilities, and ruin probabilities, as well as full balance sheets for different scenarios. In the past years DFA has become an important tool for the analysis of an insurance company's financial situation. In particular, it is a valuable instrument for solvency control, which is now becoming important as regulators encourage insurance companies to determine risk‐based capital using internal risk management models. This article considers three aspects: First, we discuss the reasons why DFA is of special importance today. Second, we classify DFA in the context of asset liability management and analyze its fundamental concepts. As a result, we identify several implementation problems that have not yet been adequately considered in the literature, and therefore our third aspect is a discussion of these areas. In particular we consider the generation of random numbers and the modeling of nonlinear dependences in a DFA framework.

Suggested Citation

  • Martin Eling & Thomas Parnitzke, 2007. "Dynamic Financial Analysis: Classification, Conception, and Implementation," Risk Management and Insurance Review, American Risk and Insurance Association, vol. 10(1), pages 33-50, March.
    • Handle: RePEc:bla:rmgtin:v:10:y:2007:i:1:p:33-50
    DOI: j.1540-6296.2007.00104.x
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    File URL: https://doi.org/10.1111/j.1540-6296.2007.00104.x
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    References listed on IDEAS

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    Cited by:

    1. Elisabeth Paté‐Cornell & Léa A. Deleris, 2009. "Failure Risks in the Insurance Industry: A Quantitative Systems Analysis," Risk Management and Insurance Review, American Risk and Insurance Association, vol. 12(2), pages 199-212, September.
    2. Christian Hertrich, 2013. "Asset Allocation Considerations for Pension Insurance Funds," Springer Books, Springer, edition 127, number 978-3-658-02167-2, June.

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