The Games We Play: the Future of DFA Models’ Interfaces Aleksey Popelyukhin, Ph.D. Vice President, Information Systems & Technology 2 W INGS R ISK S ERVICES

Dynamic Financial Analysis  Studies the company as a whole  Takes into account multiple types of risk  Compares results of different strategies  Generates distribution of possible outcomes but 1

Dynamic Financial Analysis is it really Dynamic 2 ?

Now that you have your distribution 3 questions arise

How did I get there?  staying profitable  being not so profitable  making all sorts of mistakes 3a time

Why didn’t I react?  at that point in time 3b time

What could I do?  how to avoid getting into “red zone”  what levers do I have  which scenarios require actions 3b time

Non-dynamic DFA 4  Doesn’t allow analysis of particular scenarios or group of scenarios  Doesn’t allow time-variant strategies  Doesn’t’ allow scenario-dependent strategies In short, All decisions has to be made before simulations.

DFA can be enhanced 4a If one adds:  Ability to run particular scenario (s)  Higher level of details  Clearly identified “ levers ”  Time animation  Ability to define strategy “ on-the-fly ” (as a response to scenario behavior)

Should we start from scratch? 5 We need a computing environment that provides:  High level of details  Time animation  Interactivity

Welcome to the world of Games ! 5

Simulation Games 6 Provide a computing environment with:  High level of details  Time animation  Interactivity

Similarity is striking! 7 Empire/City/Railroad Building game vs. Insurance Company management simulation:  Visual Metaphor  Functional Metaphor  “Gameplay”

Visual Metaphor 7a u Zoning Areas u Bulldozing Cost u Tall Buildings u Cultural Influence u Natural Disasters (fires, earthquakes) u etc. u Lines of Business u Brokerage Fees u Large Losses u A.M. Best Rating u Natural Disasters (fires, earthquakes) u …

Functional Metaphor 7b u Emperor/Mayor u Advisors u Progress Monitoring u Orders u Taxes u etc. u Decision Maker u CFO/Actuaries/Claims u Reporting u Actions u Taxes u …

“Gameplay” 7c u Watch Critical Indicators u Check Advisors Reports u Make Decisions u Intervene u Observe Effect in “real” time u repeat

Benefits 8 “ Game-like ” computing environment serves as:  Training ground for Executives  Fine-Tuning tool for Strategists  Self-Learning program for AI  Monitoring paradise for Management  Modeling Sandbox for Actuaries

Training 8a  Thinking with Images  Making Decisions without any Damage  Behavior in case of Disaster

Fine-Tuning 8b  Choosing Success Criteria  Refining Strategies Definitions (if..then)  Business Processes  Assumption Testing

Monitoring 8c  Multiple factors at once  “Real” time  Visual cues

Dynamic Response 8c  Time is visualized  Non-linear strategies  Feedback u Reserves u Prices u Investment

Implementation 9 Starting with the existing game Engine  we will get: u Rich Interactive Interface u Flexible Modeling Environment  we will not get: u Industry specific Models u Ability to import and constantly update Data

Engine Modifications 9a  Simulate Economy  Simulate Company  Simulate Correlations  Simulate the rest: u Competition u Geography u Weather u Catastrophes

Monitoring 9b Even if we were able to: u Design new Models u Collect necessary Data u Implement all Algorithms We still have to decide: u Which statistics to calculate u Which indicators to monitor u Which criteria to use for alerts

Presentation of Analysis Results to the Management of the Company 10 built-in!

Conclusion end Inevitably, DFA interfaces will resemble modern simulation game environments. Everyone will benefit: u Actuaries u Management u Shareholders u Policyholders

Real-life examples P.S. 1. Spatial visualization:

Real-life examples P.S. 2. Time animation:

Real-life examples P.S. 3. First Actuarial Game: