An additional consideration is whether the investment portfolio will change over time. If the insurer increases investments in lower-rated bonds, interest rates would be expected to increase, but the volatility of results would increase as well. Many of the important factors cited above are related. The relationship between interest rates and inflation was first noted in 1896 by Irving Fisher. Inflation is also related to equity returns, as well as the likelihood of adverse economic conditions that could also affect the frequency of losses.
Catastrophes affect future premium levels.
The CAS has also sponsored several seminars on DFA, and papers on this topic are available in print or on the Web site. Many financial texts describe sophisticated interest-rate models that have been developed and used to price complex financial instruments. This model, which is run on Excel and Risk software, is available at no charge. Some of the stochastic processes included in this model are shown on Figure 6 . Benchmark values for the interrelationships among variables are included in the program, but these can be changed by users to reflect the specific characteristics of each insurer.