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Make the Connection - Presenting DFA to Management
Presented by Neal M. Leibowitz, ACAS
SS&C Technologies, INC
2000 CAS Seminar on DFA
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Dynamic Financial Analysis is Complicated
....The Key to presenting DFA
is to Simplify the Message!!
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Basics for the Presentation
• Plan
• Open
• Lead
• Conclude
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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).
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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.
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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.
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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
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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.
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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
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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)
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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…”
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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%
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Lead• Direct the discussion.
• You have a point to make - make it!
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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”
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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?
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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
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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!
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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.
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Conclude
• Reemphasize your point
• Review action items
• Close on a positive note
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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.
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Review action items
• Review what’s been accomplished at the meeting.
• Review what now needs to be done and by whom.
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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.