Dynamic Financial Analysis: Classification, Conception, and Implementation

18 Pages Posted: 9 Apr 2012

See all articles by Martin Eling

Martin Eling

University of St. Gallen - Institute of Insurance Economics; University of Saint Gallen - School of Finance (SoF)

Thomas Parnitzke

University of St. Gallen - SEPS: Economics and Political Sciences

Date Written: Spring 2007

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

Eling, Martin and Parnitzke, Thomas, Dynamic Financial Analysis: Classification, Conception, and Implementation (Spring 2007). Risk Management and Insurance Review, Vol. 10, Issue 1, pp. 33-50, 2007. Available at SSRN: https://ssrn.com/abstract=2036108 or http://dx.doi.org/10.1111/j.1540-6296.2007.00104.x

Martin Eling

University of St. Gallen - Institute of Insurance Economics ( email )

Kirchlistrasse 2
St. Gallen, 9010
Switzerland

University of Saint Gallen - School of Finance (SoF) ( email )

Unterer Graben 21
St.Gallen, CH-9000
Switzerland

Thomas Parnitzke

University of St. Gallen - SEPS: Economics and Political Sciences ( email )

Rosenbergstrasse 51
St. Gallen, St. Gallen CH-9000
Switzerland

Register to save articles to
your library

Register

Paper statistics

Downloads
1
Abstract Views
479
PlumX Metrics