Make the Connection - Presenting DFA to Management

Presented by Neal M. Leibowitz, ACAS

SS&C Technologies, INC

2000 CAS Seminar on DFA

Dynamic Financial Analysis is Complicated

....The Key to presenting DFA

is to Simplify the Message!!

Basics for the Presentation

• Plan

• Open

• Lead

• Conclude

Plan - Before Your Presentation

• Understand your role.

• Become comfortable with the analysis and answers from your work

• Know your audience.

• Know what management wants to get out of DFA (the business issue at hand).

Understand your role• Why did you perform the DFA analysis in the

first place?

• Information Giving– You present information that you found in your analysis.

– Used to identify problems (opportunities), its causes and possible solutions.

• Problem Solving– You present possible solutions to a problem management

identified.

– Used to evaluate possible solutions and choose the best one.

Your Comfort Level with DFA• You must become comfortable with DFA before

you can make others comfortable with it.– The more you work on DFA the more comfortable you’ll be.

– Help is out there.• CAS Dynamic Financial Analysis Web Site.

– Dispel Misconceptions• Misconception - DFA adds uncertainty.

• DFA isn’t uncertainty it measures uncertainty!– E.g. Cox, Ingersoll & Ross interest rate model generator.

Good Graphics Communicate Uncertainty

Company's 2000 Projected ROE

12.3%

7.5% 7.5%

3.2%

0%

2%

4%

6%

8%

10%

12%

14%

Static Projection Dynamic Projection

No variability

90% Confidence Band

Know your audience

• Know exactly who is going to attend?– CEO? VP’s? One person or a dozen?

• How technical can you get?– Chief Actuary - very, VP Marketing - not

at all.

• Direct your speech to your audience.

Know your audience• Great graphic, but only for the right audience.

• Maybe this graphic would be better....

337,814323,491 353,845

.00003

.00005

.00008 Range

Know what management wants to get out of DFA

• Results not techniques

• Solutions not questions

• The reason management is interested in any presentation is always related to a business application...

• Always know the “language” that your audience speaks (e.g. answers should be given in business metrics)

Open - Start Strong

• Your opening should provoke an immediate response from the audience, setting the mood for the presentation.– “In my DFA analysis I found $50M …”– “There’s a 10% chance we’re going to be

insolvent…”– “We will fail multiple IRIS tests…”

Start StrongA Distribution of "Net Leverage"

389%

532%

673%

200%

250%

300%

350%

400%

450%

500%

550%

600%

650%

700%

DynamicJan-98

DynamicJan-99

DynamicJan-00

DynamicJan-01

DynamicJan-02

DynamicJan-03

0.05

Mean

0.95

FailPass

Under the proposed reinsurance strategy, our company will fail the Net Leverage test 32% of the time. Is this satisfactory from a “risk” standpoint?

32%

Lead• Direct the discussion.

• You have a point to make - make it!

Direct the discussion

• Only you know what you’re going to say.– Resist coughing up “Cat Hairballs”– Support observations with graphics that

“prove” something– Always address risk vs.

reward ....remember, “DFA speaks with Confidence”

Make Your Point!

• Present the Business Application– What surplus levels should be allocated to each

line of business? – How competitive can we be in our pricing?– How much should be paid out in dividends?– Which reinsurance program is best? – Should we acquire, divest or run-off lines of

business?– Which asset allocation is best given the risk

profile of the liabilities?

Make Your Point!• You can present alternatives and let

Management Decide

1,250,890

985,392

500,000

700,000

900,000

1,100,000

1,300,000

1,500,000

1,700,000

Strategy 1 Strategy 2 Strategy 3 Strategy 4 Strategy 5 Strategy 6

More Risk,Higher Expected Return

Be Prepared to Answer “Unanticipated” Questions On The Spot

• Have your DFA results handy, so you can pull up distributions on the fly....

For example, if asked how oftenwill Taxes> $80M?

Drill into yourFed Tax metric, interrogate the distributionand pick off theanswer!

The Gatekeeper• The meeting manager

– Keep the meeting on track. • Bring the discussion back to your point.

– Keep the meeting on time.• Time is money.

Conclude

• Reemphasize your point

• Review action items

• Close on a positive note

Reemphasize your point

• Put the nail in the coffin!– People tend to remember the first thing

you say and the last, so make it count and hammer home your message.

Review action items

• Review what’s been accomplished at the meeting.

• Review what now needs to be done and by whom.

Close on a positive note• Get more bees with honey.

– Discuss the solution that DFA provided not the problem it found.

– DFA is a wonderful thing that solves all insurance company problems.