Presenting DRM Results to Decision Makers

CAS Research Working Party Report Now Available

by Michael R. Larsen and Nathan J. Babcock, Co-Chairpersons,
Working Party on Executive-Level Decision-Making Using Dynamic Risk Modeling (DRM)

You have been asked to conduct an analysis of reinsurance options for your insurance company. After gathering some necessary information from the management team about the parameters of the study, you’ve spent months with a dynamic risk model conducting a thorough analysis and outlining a recommended course of action. But you’re worried, because next comes the hard part—presenting the results to senior management. You want the management team to walk away from the presentation with the information they need to move forward, and you want them to understand the nature of the study well enough to be confident they are making a well-informed decision. In a worst case-scenario, if the presentation does not clearly convey your message, there is no incentive for management to support the use of DRM and your time has been wasted.

The task of presenting DRM results to decision makers just got easier with the release of the final report of the CAS Research Working Party on Executive-Level Decision-Making Using Dynamic Risk Modeling. The working party has produced the following items to help practicing actuaries with their presentations:

• a written report from the working party;
• a PowerPoint template that can be used as a source for presentation slides;
• a paper describing how the slides in the PowerPoint template help solve some of the unique presentation problems for DRM studies;
• three sample DRM PowerPoint presentations based on the template, discussing reinsurance, investment, and mix of business options; and
• a collection of guidelines for the assembly and presentation of DRM concepts and results.

The working party report is a summary document with the items listed above linked as attachments. Each item can be downloaded.

The working party began reviewing existing DRM presentations to identify techniques or slides that effectively communicate results to management. The group found that the slide sequence for an effective DRM presentation could be broken down into three main categories: Orientation, Results, and Conclusion.

The goal in the Orientation section is to prepare the audience for the presentation of financial results. Items presented in this section include options to be evaluated, financial measures used to evaluate these options, modeling assumptions, and an overview of the modeling process.

Three questions should be addressed in the Results section of the presentation:

• What is the likely range of financial results for each option?
• How do the financial results vary over time?
• What is the risk vs. return trade-off between the options?

Graphs offer the best means to answer these questions. A large number of data points can be summarized on a well-designed graph but fine attention to detail in formatting the graphs is essential. Formatting mistakes can distract the audience, causing them to lose focus on the information the graph is intended to convey.

The need for a Conclusion is particularly acute in a DRM presentation. After you have presented your study’s results, the management team is left with the task of making a decision using results from a process that is probably outside the scope of their experience. While the responsibility for the decision lies with the management team, offering your opinion on how to interpret the results may help them process the information you provided.

The Conclusion should:

• restate the study’s goal;
• summarize the study’s results in terms of the financial measures
  selected; and
• offer an opinion on the best course of action given the financial measures selected.

To help you develop an effective DRM presentation, the working party created a PowerPoint template with slides grouped by category. For example, if you want to illustrate the reasonable range of results possible from your study’s results, you can look under the Uncertainty category and extract a slide designed for that purpose. The PowerPoint slides contain embedded Excel charts, tools commonly available to practicing actuaries. The template offers a variety of graphs that can be adapted to suit the needs of a particular DRM study. The graphs were developed by extracting and enhancing the best graphs or slides from a review of past DRM presentations.

One member of the working party, Aleksey Popelyukhin, wrote the paper, “Presenting DRM Results: Helping Executives Make Sense of DRM,” which the working party has provided with their summary report and PowerPoint template. His paper’s focus is designing graphs such as those in the working party’s template. The paper describes how these graphs can be built and the various purposes they serve in DRM presentations.

The working party’s sample presentations illustrate the use of the PowerPoint template and make our general observations on effective DRM presentations more concrete. The slides are available with speaker notes that describe why a given slide was included and the intended benefit for the audience. The sample presentations complement both the general, conceptual findings on what makes an effective DRM presentation and the PowerPoint slides in the template.

With the PowerPoint slides providing some building blocks that can be used to assemble a DRM presentation, the collection of guidelines developed by the working party is meant to provide a checklist the presenter can refer to while assembling the presentation.

The working party’s products provide presentation tools to help make a DRM study useful to management. The next time you are faced with the task, we encourage you to download these tools.
Editor’s note: In addition to Larsen, Babcock, and Popelyukhin, members of the working party include Raju Bohra, Patrick J. Crowe, Nathan Schwartz, Scott Sobel, and Robert Walling.