Returning again to the statutory implications, of this combined reinsurance and investment strategy. Exhibit 9 shows the impact to DFAIC's statutory surplus relative to the current asset strategy of changing only the investment strategy and of changing both the reinsurance and investment strategy.
Exhibit 9: DFAIC'a Statutory Surplus Comparisons
75th 50th 25th
Reinsurance Strategy: Investment Strategy:
Current Revised StrategyC StrategyE'
By simultaneously increasing the efficiency of their reinsurance strategy and investment strategy, DFAIC accomplishes a better economic risk/reward profile and is able to achieve a better statutory profile at the end of the five-year horizon. Thus by considering DFAIC's business holistically, our analysis indicates that we can implement a revised reinsurance strategy and take a more aggressive asset strategy, resulting in an expected economic benefit and improved long-term statutory results.
Finally, using the Tail Conditional Expectation (1-Year) approach from our sister paper ("DFA Insurance Company Case Study, Part I1:Capital Adequacy and Capital Allocation =, by S. Philbrick and R. Painter), we found that the new reinsurance program coupled with asset strategy E', increased the company's required capital by only 6%. Thus, DFAIC's actual capital is still significantly above the required minimum level. Additional details and changes in required capital under other capital adequacy measures (e.g., RBC capital adequacy ratios) can be found in that paper.