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CASUALTY ACTUARIAL SOCIETY

CASUALTY ACTUARIAL SOCIETY. DYNAMIC FINANCIAL ANALYSIS. BUSINESS PLANNING AND FINANCIAL MODELS. Carl J. Leo, ACAS, MAAA OMNI Insurance Group. FEATURES OF AN EFFECTIVE PLANNING SYSTEM. Communication Instrument Coordination Mechanism Control Device Motivational Tool

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CASUALTY ACTUARIAL SOCIETY

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  1. CASUALTY ACTUARIAL SOCIETY DYNAMIC FINANCIAL ANALYSIS BUSINESS PLANNING AND FINANCIAL MODELS Carl J. Leo, ACAS, MAAA OMNI Insurance Group

  2. FEATURES OF AN EFFECTIVE PLANNING SYSTEM • Communication Instrument • Coordination Mechanism • Control Device • Motivational Tool • Improved Decision Making • Full and Substantive Involvement

  3. FINANCIAL PLANNING MODELS • A formal statement of expectations regarding sales, expenses and other financial transactions • A planning tool for the coordination, integration and evaluation of segment plans • A control mechanism for measuring performance and variances on critical success factors • Not intended to be an accurate predictor, but a tool for planning

  4. FINANCIAL MODELS - APPLICATIONS • Financial Forecasting and Analysis • Construction of Pro Forma Financial Statements and Results • Development of Operating Plans and Budgets • Evaluation of Performance • Guidance on Strategic and Operational Decision Making • Measuring Risk and Uncertainty • Tax/Investment Planning

  5. FINANCIAL MODELS - COMPONENTS • Financial Variables (e.g. revenue, expense, investment income, cash, taxes) • Input Variables and Performance Variables • Policy Variables (decision/control variables) • Deterministic or Stochastic • Mathematical / Structural Relationships • Input Parameters (e.g. expected loss payout)

  6. FINANCIAL MODELS - SUCCESS FACTORS • Operations well understood by developers • Input data readily accessible • Development and application involves corporate management • Input and output in convenient formats • Understandable, relatively simple • Ample allowance for judgmental inputs • Reasonably validated • Well documented • Can be flexibly updated or modified

  7. OBJECTIVES & GOALS REVIEW & EVAL DEVELOP PLANS REVIEW & EVAL EXECUTE PLANS MEASURE PERFORMANCE REVIEW & EVAL

  8. SALES / PREMIUM PROJECTION INCURRED LOSS PROJECTION KNOWN / PLANNED CHANGES EXPENSE PROJECTION CASH FLOW PROJECTION INVESTMENT INCOME PROJECTION INITIAL PRO FORMA FINANCIALS

  9. PLANS & INTENDED ACTIONS PREM , LOSS EXPENSE, INV INC PROJECTIONS INITIAL PRO FORMA FINANCIALS PREMIUM / REVENUE PLAN EARNED PREM UNEARNED PREM PREM RECEIPTS INCURRED LOSS PAID LOSS LOSS RESERVES EXPENSE BUDGET INVESTMENT INCOME OPERATING PLAN FINANCIALS

  10. ABC INS CO - PROJECTED WRITTEN POLICIES

  11. ABC INS CO - PROJECTED WRITTEN PREMIUM

  12. ABC INS CO - PROJECTED LOSS RATIOS

  13. ABC INS CO - PROJECTED EXPENSES

  14. ABC INS CO - PROJECTED CASH FLOW

  15. ABC INS CO - PROJECTED INVESTMENT INCOME

  16. ABC INS CO - PROJECTED BALANCE SHEET

  17. ABC INS CO - PROJECTED INCOME STATEMENT

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