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Investment Presentation Example

Investment Presentation Example . 2003 CAS Research Working Party: Executive Level Decision Making using DFA Michael R. Larsen, FCAS, MAAA. Goals of Study. Review Reinvestment Options Measure Results using Simulation Model Results

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Investment Presentation Example

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  1. InvestmentPresentation Example 2003 CAS Research Working Party: Executive Level Decision Making using DFA Michael R. Larsen, FCAS, MAAA

  2. Goals of Study • Review Reinvestment Options • Measure Results using Simulation Model Results • Risk as Average Loss in Surplus in Worst 1% of Cases over Five Years • Return as Average Increase in Policy Holder Surplus at End of Five Years 2003 CAS Research Working Party

  3. Change in Reinvestment Allocation 2003 CAS Research Working Party

  4. Corporate Elements Reinsurance Investment Capital Mix Taxes • Measures of • Risk • Return Change in Policy Holder Surplus DFA Flow Starting Policy Holder Surplus 40,000 Work Comp Grow 5% a year Multi_Peril Grow 5% a year Financial Calculator Analyze Results Financial Results Simulated over Five Years 2003 CAS Research Working Party

  5. Assume Underwriting Operations Not Affected • Ability to take rate changes not driven by investment results • Growth rates in exposure does not change • Investment Scenario • Long run average interest rate of 4% • Starting interest rate of 4% • Investment Models • Short term interest rate model is a mean reversion model • Long term rates are a function of short term rates • Stock returns modeled as a function of short term rates and interest rate changes • Stable relationship between bond and equity market Model / Assumptions Assumptions Behind Simulation 2003 CAS Research Working Party

  6. Policyholder Surplus Change by Reinvestment Option 2003 CAS Research Working Party

  7. Surplus Change Over Time by Investment Option 2003 CAS Research Working Party

  8. Investment Option Comparison Better Option D Highest Return Less Risk 2003 CAS Research Working Party

  9. Investment Option Summary 2003 CAS Research Working Party

  10. Conclusion • Reviewed four Reinvestment Options • Option D gives Best Gain in Surplus with Less Additional Risk 2003 CAS Research Working Party

  11. Questions • Questions on Presentation? • Questions on Working Party Process? • Suggestions for New Working Parties? 2003 CAS Research Working Party

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