Dynamic Financial Analysis Is New Wave.

The only insurance-oriented technology outpacing the transforming power of the Internet may be computer-based dynamic financial analysis, three insurance experts who are developing that field told insurers.

In fact, dynamic financial analysis is difficult to perform through Internet connections. That's because it takes powerful mainframe computers four to five minutes to perform the thousands--sometimes millions--of calculations to yield the statistical results that are at the heart of dynamic financial analysis, said Stephen Philbrick of Swiss Re Investors.

In dynamic financial analysis, financial experts "stress test" a property/ casualty insurer's financial position by plugging in a host of possible underwriting, investment and economic scenarios to determine the most probable outcomes. Those are then plotted along risk-reward graphs, with the outcomes that best balance risk vs. reward, defining what's called the "efficient frontier."

"Once you become comfortable with the range of outcomes, then you've got a strategy," said Brett Price of SS&C Technologies Inc. "DFA becomes like the virtual wind tunnel for the aerospace industry."

"You really have to go into tens of thousands or hundreds of thousands of scenarios," said Manuel Amalgro of Till-inghast-Towers Perrin. He predicted that in time the data would be broadened to include nonfinancial risks.