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that continuously revisits these strategic levers in what we call the DFA spiral, This is in contrast to the traditional approach in which these strategic decisions are evaluated each in their individual silos. Figure 1 gives a graphical picture of these two different approaches.

Reinsurance

Asset

Capital I

Allocation

Adequacy I

Dynamic Financial Analysis

I

I

Figure 1

Traditional Analysis

Unfortunately, a paper does not easily lend itself to a spiral analysis, so for the sake of convenience we will first complete a single loop around the DFA spiral holding the strategic decisions that relate to other sections constant. This will allow us to show how DFA can be used to deal with individual strategic initiatives but still within a holistic framework. We will then begin a second loop taking into consideration the strategic initiatives suggested as a result of the initial loop. This will allow us to identify and discuss the additional opportunities that result from simultaneous changes to two or more strategic initiatives.

This paper concentrates on the reinsurance structure and the asset allocation strategy. While information concerning capital adequacy will be stated, the interested reader should refer to the sister paper "Dynamic Financial Analysis, DFA Insurance Company Case Study, Part Ih Capital Adequacy and Capital Allocation" for a detailed description of the methodology used in the development of these numbers.

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