what the current short term rate is heading. In other words, the further the current interest rate is from the long term expected rate, the harder the deterministic part tries to reverse it back to the long term mean. The stochastic part is purely random; it can either help the current interest rate deviate from its long term mean or the reverse. Because this part is multiplied by the square root of the current interest rate, when the current interest rate is low, its impact is minimum, thus leading to the unlikelihood of the interest rate going below zero, and the interest rate cannot be negative. However, the reverse is true if the current rate is high. Jurisdictional Risk Generator In the United States, each state has its own regulatory, jurisdictional and legislative bodies, and there are advantages and disadvantages for an insurance company conducting businesses in different states. For example, some states have restrictions on how much rate increase that an insurance company can charge for the risks on which it takes. Such risk can severely hamper the insurance entity's profitability and operation. In DFA, jurisdiction risk is reflected in two ways. "Acceptable" rate changes: each state has its own limit for how much rate increase in percentage proportional to the existing rate an insurance company can charge without attracting regulators' scrutiny. Under the scenarios, if DFA indicates that the insurance company needs to charge more than the state's maximum limit for the risks, that should raise a red flag to the executives overseeing the insurance business in that region. Lag in implementing indicated rate changes: insurance companies often do not immediately implement the approved rate changes, and in fact there is often a lag of 3 to 6 months. The lag, shown in the model in terms of years, is longer in states with harsh rate regulation. Underwriting Cycles Generator The number of policies an insurance company can sell depends on the macroeconomic environment of the insurance industry. The DFA scenario accounts for this risk factor to best simulate the nature of insurance business. Below are four underwriting cycles that an insurance company may experience. Mature Hard: Rates can be increased and may still sell more policies Mature Soft: Rates need to be decrease in order to sell more policies Immature Hard: Transition state from mature soft to mature hard Immature Soft: Transition state from mature hard to