In the rapidly changing arena of capital management, Milliman offers objective insight on managing risk.

As the insurance industry develops more complex, riskier products, and ways to mitigate such risks, new measurement tools are emerging to better assess those risks and establish needed capital and reserve levels. Economic capital calculations have become crucial for determining how much capital is needed and how much is truly available. The methods for determining economic capital are still evolving, however, and many decisions must be made along the way.

Client-specific economic capital models

To fill this knowledge gap, many insurers rely on Milliman's strong track record of tailoring internal capital models to satisfy individual client needs. We can provide the incisive analysis necessary to meet regulators' requirements and to conform to emerging industry standards in the United States, Solvency II in Europe, and the IAIS' global framework.

Milliman works with capital-management clients in two ways. We develop capital models for insurers from scratch, using our exclusive software tools MG-ALFA® and MG-Hedge®. We also assist companies in adapting their existing models to incorporate newer, more sophisticated risk-evaluation methods.

Evaluating risk from every angle

The result is a complete picture that takes into account underwriting, credit, market, liquidity, and operational risks. Each risk is then evaluated for volatility, unforeseen catastrophe, and modeling uncertainty.

Having just the right amount of capital has never been more important. Too much and business returns suffer, and product prices may rise to uncompetitive levels. Too little and a company may run afoul of regulators and rating agencies and be at risk of insolvency.

We can help you find that perfect balance point, where you’re best positioned to excel in today's competitive marketplace.

Modeling gives client clarity on its economic capital position

Milliman recently completed a project assisting a large U.S. client in developing its economic capital models and analyses. Using existing MG-ALFA and MG-Hedge models of the business and developing new models as needed, we created internal capital models of the assets and liabilities in the company’s business lines to determine required economic capital. In addition, we determined the amount of capital necessary to mitigate strategic failure and operational failure risks. We then modeled the surplus assets to determine available economic capital. As a result, the company found that it has a very favorable position and will be able to use this information to its advantage.